<PAGE>

                                    FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

     (MARK ONE)

     /X/  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
          EXCHANGE ACT OF 1934.

     FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 27, 1998

                                       OR

     / /  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
          EXCHANGE ACT OF 1934

     FOR THE TRANSITION PERIOD FROM ____________ TO ____________

Commission File Number: 0-12798

                               CHIRON CORPORATION
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

             DELAWARE                                            94-2754624
(State or other jurisdiction of                               (I.R.S. Employer
incorporation or organization)                               Identification No.)

                4560 HORTON STREET, EMERYVILLE, CALIFORNIA 94608
               (Address of principal executive offices) (Zip code)

                                 (510) 655-8730
              (Registrant's telephone number, including area code)

                                 NOT APPLICABLE
--------------------------------------------------------------------------------
  (Former name, former address and former fiscal year, if changed since last 
   report)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                               Yes /X/     No / /

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

         TITLE OF CLASS                         OUTSTANDING AT OCTOBER 31, 1998
Common Stock, $0.01 par value                            178,653,178


<PAGE>

                               CHIRON CORPORATION
                                TABLE OF CONTENTS

                                                                        PAGE NO.
                                                                        --------

PART I.  FINANCIAL INFORMATION

         ITEM 1. FINANCIAL STATEMENTS

             Condensed Consolidated Balance Sheets as of
             September 30, 1998 and December 31, 1997.........................3

             Condensed Consolidated Statements of Operations for
             the three and nine months ended September 30, 1998 and 1997......4

             Condensed Consolidated Statements of Comprehensive Income
             for the three and nine months ended September 30, 1998 and 1997..5

             Condensed Consolidated Statements of Cash Flows for
             the nine months ended September 30, 1998 and 1997................6

             Notes to Condensed Consolidated Financial Statements.............7

         ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS...............20

         ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..36

PART II. OTHER INFORMATION

         ITEM 1. LEGAL PROCEEDINGS...........................................36

         ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................37

SIGNATURES...................................................................39


                                       2
<PAGE>

ITEM 1.  FINANCIAL STATEMENTS.

                               CHIRON CORPORATION
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                             SEPTEMBER 30,    DECEMBER 31,
                                                                                  1998            1997
                                                                             -------------    -----------
                                                                              (UNAUDITED)
                                     ASSETS
<S>                                                                          <C>               <C>
Current assets:
   Cash and cash equivalents                                                 $      80,468     $     98,483
   Short-term investments in marketable debt securities                            111,969           84,588
                                                                             -------------     ------------
         Total cash and short-term investments                                     192,437          183,071
   Accounts receivable                                                             348,015          344,044
   Inventories                                                                     177,441          165,652
   Deferred taxes                                                                  110,264           26,414
   Assets held for sale (Note 2)                                                    11,500                -
   Other current assets                                                             46,603           50,871
                                                                             -------------     ------------
         Total current assets                                                      886,260          770,052
Noncurrent investments in marketable debt securities                               227,527           75,401
Property, plant, equipment and leasehold improvements, at cost:
   Land and buildings                                                              218,983          218,509
   Laboratory, production and office equipment                                     431,204          422,278
   Leasehold improvements                                                          103,504          123,379
   Construction in progress                                                         67,090           67,355
                                                                             -------------     ------------
                                                                                   820,781          831,521
   Less accumulated depreciation and amortization                                 (306,505)        (277,623)
                                                                             -------------     ------------
         Net property, plant, equipment and leasehold improvements                 514,276          553,898
Purchased technology, net                                                           30,195           45,903
Other intangible assets, net                                                       184,041           79,955
Investments in equity securities and affiliated companies                           47,670          176,851
Other assets                                                                        70,480           66,418
                                                                             -------------     ------------
                                                                             $   1,960,449     $  1,768,478
                                                                             -------------     ------------
                                                                             -------------     ------------
                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                                          $      73,801     $     79,339
   Accrued compensation and related expenses                                        55,269           59,405
   Short-term borrowings                                                            25,618          154,700
   Current portion of unearned revenue                                              19,660           13,361
   Taxes payable                                                                    66,206           37,191
   Other current liabilities                                                       133,039          127,190
                                                                             -------------     ------------
         Total current liabilities                                                 373,593          471,186
Long-term debt                                                                     405,865          397,217
Other noncurrent liabilities                                                        39,093           26,130
                                                                             -------------     ------------
         Total liabilities                                                         818,551         894,533
                                                                             -------------     -----------
Commitments and contingencies
Stockholders' equity:
   Common stock                                                                      1,782            1,757
   Additional paid-in capital                                                    1,956,802        1,853,591
   Accumulated deficit                                                            (797,683)        (961,986)
   Accumulated other comprehensive loss                                            (19,003)         (18,808)
   Notes receivable from stock sales                                                     -             (609)
                                                                             -------------     ------------
         Total stockholders' equity                                              1,141,898          873,945
                                                                             -------------     ------------
                                                                             $   1,960,449     $  1,768,478
                                                                             -------------     ------------
                                                                             -------------     ------------
</TABLE>
           THE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL
               STATEMENTS ARE AN INTEGRAL PART OF THIS STATEMENT.


                                       3
<PAGE>

                               CHIRON CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                    THREE MONTHS ENDED                      NINE MONTHS ENDED
                                                                       SEPTEMBER 30,                          SEPTEMBER 30,
                                                              -----------------------------           -----------------------------
                                                                 1998                1997                1998                1997
                                                              ---------           ---------           ---------           ---------
<S>                                                           <C>                 <C>                 <C>                 <C>
Revenues:
   Product sales, net                                         $ 112,813           $  62,080           $ 278,091           $ 173,090
   Equity in earnings of unconsolidated
     joint businesses                                            21,255              28,849              51,493              82,835
   Collaborative agreement revenues                              24,278              36,394              73,110              92,370
   Royalty and license fee revenues                              49,756              12,966              81,325              37,105
   Other revenues                                                 7,868               6,136              28,128              28,168
                                                              ---------           ---------           ---------           ---------
     Total revenues                                             215,970             146,425             512,147             413,568
                                                              ---------           ---------           ---------           ---------

Expenses:
   Cost of sales                                                 49,607              30,020             120,917              81,969
   Research and development                                      69,437              68,008             202,376             193,864
   Selling, general and administrative                           40,170              25,132             102,057              72,880
   Write-off of purchased in-process technologies                     -                   -               1,645                   -
   Impairment loss on long-lived assets                               -              31,300                   -              31,300
   Restructuring and reorganization charges (Note 3)              6,401                   -              11,339                   -
   Other operating expenses                                       3,121                 995               7,025               3,104
                                                              ---------           ---------           ---------           ---------
     Total expenses                                             168,736             155,455             445,359             383,117
                                                              ---------           ---------           ---------           ---------

Income (loss) from operations                                    47,234              (9,030)             66,788              30,451

Gain on sale of assets (Note 4)                                   1,510                   -               7,751                   -
Interest expense                                                 (6,009)             (8,068)            (18,638)            (23,710)
Other income, net                                                 5,035               4,183              21,196               7,830
                                                              ---------           ---------           ---------           ---------

Income (loss) from continuing operations
   before income taxes                                           47,770             (12,915)             77,097              14,571

Provision for income taxes                                       13,856               6,539              15,539              13,275
                                                              ---------           ---------           ---------           ---------

Income (loss) from continuing operations                         33,914             (19,454)             61,558               1,296
                                                              ---------           ---------           ---------           ---------

Discontinued operations (Note 2):
   Income (loss) from discontinued operations                     5,001               6,773              (8,107)             17,101
   Gain on disposal of discontinued operations                   45,520                   -             110,852                   -
                                                              ---------           ---------           ---------           ---------

Net income (loss)                                             $  84,435           $ (12,681)          $ 164,303           $  18,397
                                                              ---------           ---------           ---------           ---------
                                                              ---------           ---------           ---------           ---------

Basic earnings per share:
   Income (loss) from continuing operations                   $    0.19           $   (0.11)          $    0.35           $    0.01
                                                              ---------           ---------           ---------           ---------
                                                              ---------           ---------           ---------           ---------
   Net income (loss)                                          $    0.47           $   (0.07)          $    0.93           $    0.11
                                                              ---------           ---------           ---------           ---------
                                                              ---------           ---------           ---------           ---------

Diluted earnings per share:
   Income (loss) from continuing operations                   $    0.19           $   (0.11)          $    0.34           $    0.01
                                                              ---------           ---------           ---------           ---------
                                                              ---------           ---------           ---------           ---------
   Net income (loss)                                          $    0.47           $   (0.07)          $    0.91           $    0.10
                                                              ---------           ---------           ---------           ---------
                                                              ---------           ---------           ---------           ---------
</TABLE>

                    THE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL 
                         STATEMENTS ARE AN INTEGRAL PART OF THIS STATEMENT.


                                               4
<PAGE>

                               CHIRON CORPORATION
            CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                   (UNAUDITED)
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                               THREE MONTHS ENDED                       NINE MONTHS ENDED
                                                                  SEPTEMBER 30,                           SEPTEMBER 30,
                                                          -----------------------------           -----------------------------
                                                             1998                1997                1998                1997
                                                          ---------           ---------           ---------           ---------
<S>                                                       <C>                 <C>                 <C>                 <C>
Net income (loss)                                         $  84,435           $ (12,681)          $ 164,303           $  18,397
                                                          ---------           ---------           ---------           ---------
Other comprehensive income (loss):

   Foreign currency translation adjustment:
     Change in foreign currency translation
       adjustment during the period                           7,893              (6,261)              6,910             (17,785)
     Reclassification adjustment for loss
       included in discontinued operations                        -                   -               2,087                   -
                                                          ---------           ---------           ---------           ---------
     Net foreign currency translation adjustment              7,893              (6,261)              8,997             (17,785)
                                                          ---------           ---------           ---------           ---------

   Unrealized (loss) gain from investments:
     Unrealized holding (losses) gains arising
       during the period                                     (2,375)              3,120              (8,744)             (2,345)
     Reclassification adjustment for net
       loss (gain) included in net income
       (loss) (net of tax benefit (provision)
       of $311 and ($737) for the three months
       ended September 30, 1998 and 1997,
       respectively, and ($253) and ($730) for
       the nine months ended September 30,
       1998 and 1997, respectively)                             553              (1,311)               (448)             (1,296)
                                                          ---------           ---------           ---------           ---------

     Net unrealized (loss) gain from investments             (1,822)              1,809              (9,192)             (3,641)
                                                          ---------           ---------           ---------           ---------

Other comprehensive income (loss)                             6,071              (4,452)               (195)            (21,426)
                                                          ---------           ---------           ---------           ---------

Comprehensive income (loss)                               $  90,506           $ (17,133)          $ 164,108           $  (3,029)
                                                          ---------           ---------           ---------           ---------
                                                          ---------           ---------           ---------           ---------
</TABLE>

           THE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL 
                STATEMENTS ARE AN INTEGRAL PART OF THIS STATEMENT.


                                              5
<PAGE>

                               CHIRON CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                               NINE MONTHS ENDED
                                                                                                 SEPTEMBER 30,
                                                                                         -----------------------------
                                                                                            1998                1997
                                                                                         ---------           ---------
<S>                                                                                      <C>                 <C>
Net cash provided by operating activities                                                $  85,766           $  83,710
                                                                                         ---------           ---------

Cash flows from investing activities:
   Purchases of investments in marketable debt securities                                 (371,343)            (58,523)
   Proceeds from sale and maturity of investments in marketable debt securities            192,406              44,810
   Capital expenditures                                                                    (82,480)            (49,904)
   Proceeds from disposal of discontinued operations                                       298,939                   -
   Proceeds from sale of assets                                                             38,312                   -
   Business acquired, net of cash acquired                                                 (54,770)                  -
   Purchases of investments in equity securities and affiliated companies                   (6,000)            (10,942)
   Other, net                                                                              (23,314)            (10,884)
                                                                                         ---------           ---------
       Net cash used in investing activities                                                (8,250)            (85,443)
                                                                                         ---------           ---------

Cash flows from financing activities:
   Proceeds from issuance of short-term debt                                                     -              15,931
   Repayment of short-term debt                                                           (129,800)                  -
   Repayment of notes payable and capital leases                                            (1,693)            (31,237)
   Proceeds from issuance of common stock                                                   35,962              52,462
                                                                                         ---------           ---------
       Net cash (used in) provided by financing activities                                 (95,531)             37,156
                                                                                         ---------           ---------

       Net (decrease) increase in cash and cash equivalents                                (18,015)             35,423
Cash and cash equivalents at beginning of the period                                        98,483              68,114
                                                                                         ---------           ---------

Cash and cash equivalents at end of the period                                           $  80,468           $ 103,537
                                                                                         ---------           ---------
                                                                                         ---------           ---------
</TABLE>

           THE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL
               STATEMENTS ARE AN INTEGRAL PART OF THIS STATEMENT.


                                     6

<PAGE>

                              CHIRON CORPORATION
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                              SEPTEMBER 30, 1998
                                  (UNAUDITED)

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     BASIS OF PRESENTATION

     The information at September 30, 1998, and for the three and nine months 
ended September 30, 1998 and 1997, is unaudited, but includes all normal 
recurring adjustments which the management of Chiron Corporation ("Chiron" or 
the "Company") believes to be necessary for fair presentation of the periods 
presented. For the three months ended September 30, 1998, the Company's 
results include a $3.3 million reduction in cost of sales resulting from a 
change in estimated accruals created in prior periods. For the nine months 
ended September 30, 1998, the Company's results also include a $6.0 million 
reduction in cost of sales due to a change in estimated property tax accruals 
created in prior periods; a $3.6 million reduction in restructuring and 
reorganization charges due to a revised estimate of property and other 
tax-related accruals recorded in 1995 in connection with the idling of the 
Puerto Rico facility (see Note 4); and a $2.0 million reduction in selling, 
general and administrative expenses due to changes in estimated accruals 
created in prior periods. For the nine months ended September 30, 1997, the 
Company's results include a $3.2 million reduction in second-quarter selling, 
general and administrative expenses due to changes in estimated accruals 
created in prior periods.

     The condensed consolidated balance sheet amounts at December 31, 1997 have
been derived from audited financial statements. Interim results are not
necessarily indicative of results for a full year. This information should be
read in conjunction with Chiron's audited consolidated financial statements for
the year ended December 28, 1997, which are included in the Annual Report on
Form 10-K filed by the Company with the Securities and Exchange Commission.

     In the first quarter of 1998, Chiron completed the sale of its ophthalmic
business unit, Chiron Vision Corporation ("Chiron Vision"), to Bausch & Lomb
Incorporated (see Note 2). The accompanying Condensed Consolidated Statements of
Operations for all periods presented reflect the after-tax results of Chiron
Vision, and the gain on disposal thereof, as discontinued operations.

     In the second quarter of 1998, Chiron acquired Hoechst AG's 51-percent
interest in Chiron Behring GmbH & Co ("Chiron Behring") in an acquisition
accounted for under the purchase method of accounting (see Note 5). Beginning
March 31, 1998, the financial position and results of operations of Chiron
Behring were consolidated with those of the Company.

     In the third quarter of 1998, Chiron signed a definitive agreement whereby
Chiron agreed to sell its in vitro diagnostics business ("Chiron Diagnostics")
to Bayer Corporation (see Note 2). Under the terms of the agreement, Chiron 
will retain (i) its blood testing business, including certain aspects of its 
alliance with Gen-Probe, Incorporated, (ii) its joint business with 
Ortho-Clinical Diagnostics, Inc., and (iii) its information technology 
("informatics") business.  The accompanying Condensed Consolidated Statements 
of Operations reflect the after-tax results of Chiron Diagnostics, and the gain 
on disposal thereof, as discontinued operations for all periods presented.


                                     7
<PAGE>

                               CHIRON CORPORATION
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               SEPTEMBER 30, 1998
                                   (UNAUDITED)

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     FISCAL YEAR

   The fiscal year of the Company is a 52 or 53-week year ending on the Sunday
nearest the last day in December of each year. As a result, the third quarters
of 1998 and 1997 represent the thirteen-week periods ended September 27, 1998
and September 28, 1997, respectively. For presentation purposes, dates used in
the condensed consolidated financial statements and notes thereto refer to the
fiscal month end.

     INVENTORIES

     Pharmaceutical inventories are stated at the lower of cost or market using
the average cost method or, in the case of certain vaccine products, using the
last-in, first-out ("LIFO") method. Diagnostic and ophthalmic (see Note 2), and
certain other vaccine products are valued at cost, using the first-in, first-out
("FIFO") method which is less than market value. Inventories consist of the
following:

<TABLE>
<CAPTION>
                                         SEPTEMBER 30,      DECEMBER 31,
                                             1998              1997
                                         --------------     -----------
                                                   (IN THOUSANDS)
<S>                                      <C>                <C>
             Finished goods              $       58,683     $      82,896
             Work in process                     74,776            47,417
             Raw materials                       43,982            35,339
                                         --------------     -------------
                                         $      177,441     $     165,652
                                         --------------     -------------
                                         --------------     -------------
</TABLE>

     INCOME TAXES

     The 1998 estimated annual tax provision is expected to be 26 percent of
pretax income from continuing operations, excluding restructuring and
reorganization charges, a financial reporting gain on sale of the Puerto Rico
facility (see Note 4), and $6.0 million of financial reporting income recognized
in the second quarter of 1998 due to a change in estimated property tax
accruals. The provision may be affected in future periods by changes in
management's estimates with respect to the Company's deferred tax assets and
other items affecting the overall tax rate. In 1998, restructuring and
reorganization charges recorded during the three and nine months ended September
30, 1998 are expected to create current additional income tax benefits of
approximately $0.8 million and $2.9 million, respectively. The benefits from
restructuring and reorganization charges are lower than the estimated annual tax
rate applied to such charges due to the timing of the deduction of a certain
portion of the charges for income tax purposes. The sale of the Company's Puerto
Rico facility, for which a financial reporting gain on sale of assets was
recorded during the nine months ended September 30, 1998, resulted in a tax
deductible loss for which a current additional income tax benefit of $1.5
million was recognized. These income tax benefits offset income tax expense
attributable to pretax income from continuing operations and, accordingly,
reduce the effective tax rate on continuing operations. Financial reporting
income of


                                      8
<PAGE>

                               CHIRON CORPORATION
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               SEPTEMBER 30, 1998
                                   (UNAUDITED)

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

$6.0 million was recognized during the nine months ended September 30, 1998 from
a change in estimated property tax accruals; such accruals were not tax
deductible and, accordingly, the change of estimate resulted in no income tax
provision. During the three and nine months ended September 30, 1998, net
deferred tax assets of $7.2 million and $10.7 million, respectively, and
corresponding credits to deferred tax expense, were recognized through a
reduction in the valuation allowance, as they more likely than not will be
realized, for U.S. federal and state tax purposes. In addition, in the third
quarter of 1998, the Company reduced its valuation allowance for net deferred
tax assets by an additional $53.4 million as the deferred tax assets will more
likely than not be realized due to the planned sale of the Company's in vitro
diagnostics business. As these deferred tax assets resulted from tax benefits
related to the Company's stock option plans, the corresponding credit was
recorded as additional paid-in capital. The recognition of such net deferred tax
assets is based on management's estimates of future taxable income in the United
States, including the anticipated taxable gain on the planned disposal of the
Company's in vitro diagnostics business. Such estimates are subject to change
based on future events and, accordingly, the amount of deferred tax assets
recognized may increase or decrease from period to period.

     Income tax expense for the three and nine months ended September 30, 1997
was based on an estimated annual effective tax rate on pretax income from
continuing operations of approximately 29 percent, excluding the charge for the
impairment loss on long-lived assets which did not create a corresponding income
tax benefit at that time. The actual 1997 annual effective tax rate of 24
percent, exclusive of the impact of the impairment loss in the third quarter,
reflects a change in estimate of the mix of foreign versus domestic profits,
benefits of certain tax credits and loss carryforwards, and anticipated foreign
sales corporation benefits.

     PER SHARE DATA

     In accordance with Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings per Share" ("SFAS 128"), basic earnings per share data is based
on the weighted-average number of common shares outstanding during the period.
Diluted earnings per share data is based on the weighted-average number of
common and dilutive potential common shares outstanding. Dilutive potential
common shares result from (i) the assumed exercise of outstanding stock options,
warrants and equivalents thereof that have a dilutive effect when applying the
treasury stock method; and (ii) performance units to the extent that dilutive
shares are assumed to be issuable if the contingency and reporting periods ended
on the same date. All prior period per share data has been restated to conform
with the provisions of SFAS 128 subsequent to its adoption by the Company in the
fourth quarter of 1997.


                                      9
<PAGE>

                               CHIRON CORPORATION
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               SEPTEMBER 30, 1998
                                   (UNAUDITED)

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     A reconciliation of the denominators of Chiron's earnings per common share
computations is as follows:

<TABLE>
<CAPTION>
                                                       THREE MONTHS ENDED            NINE MONTHS ENDED
                                                          SEPTEMBER 30,                 SEPTEMBER 30,
                                                      1998           1997            1998           1997
                                                   -----------    -----------     -----------    ---------
                                                                          (IN THOUSANDS)
<S>                                                <C>            <C>             <C>            <C>
     Weighted-average common shares
       outstanding                                     177,820        174,221         177,086        172,930
     Effect of dilutive securities:
       Options and equivalents                           1,937              -           2,447          4,393
       Warrants                                            135              -             170            205
       Performance units                                     -              -               -             41
                                                   -----------    -----------     -----------    -----------
     Weighted-average common shares
       outstanding plus assumed conversions            179,892        174,221         179,703        177,569
                                                   -----------    -----------     -----------    -----------
                                                   -----------    -----------     -----------    -----------
</TABLE>

     For the three months ended September 30, 1998 and 1997, options to purchase
14,717,000 and 5,159,000 shares, respectively, of common stock were outstanding
on a weighted-average basis but were excluded from the computation of diluted
earnings per common share because the options' exercise prices were greater than
the respective average market prices of the underlying stock of $16.96 and
$21.46 in the third quarters of 1998 and 1997, respectively.

     For the nine months ended September 30, 1998 and 1997, options to purchase
13,821,000 and 7,030,000 shares, respectively, of common stock were outstanding
on a weighted-average basis but were excluded from the computation of diluted
earnings per common share because the options' exercise prices were greater than
the respective average market prices of the underlying stock of $18.35 and
$20.00 for the nine months ended September 30, 1998 and 1997, respectively.

     For the three and nine months ended September 30, 1998 and 1997, an
insignificant number of performance units contingently payable in shares of
common stock was also excluded from the computation of diluted earnings per
common share based on the performance goals which were then unmet at September
30, 1998 and 1997.

     A total of 12,026,000 shares of common stock issuable upon conversion of
the Company's convertible subordinated debentures, having a weighted-average
conversion price of $29.43 per share, has been excluded from the computations of
diluted earnings per common share for all periods presented since its inclusion
would be antidilutive.

     COMPREHENSIVE INCOME

     In accordance with SFAS No. 130, "Reporting Comprehensive Income" 
("SFAS 130"), the Company has displayed the components of "Other comprehensive 
income (loss)" and "Comprehensive income (loss)," in the accompanying


                                     10
<PAGE>

                               CHIRON CORPORATION
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               SEPTEMBER 30, 1998
                                   (UNAUDITED)

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Condensed Consolidated Statements of Comprehensive Income. Unless otherwise
noted, the components of the Company's "Other comprehensive income (loss)" and
"Comprehensive income (loss)," have no tax effect as the Company makes no
provision for U.S. income taxes applicable to (i) undistributed earnings of
foreign subsidiaries that are indefinitely reinvested in foreign operations; or
(ii) unrealized holding gains or losses from investments that are recorded as a
component of equity. All prior period data has been reclassified to conform with
the provisions of SFAS 130.

     SEGMENT INFORMATION

     In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131"), which is effective for fiscal years beginning after December 15, 1997.
SFAS 131 establishes standards for reporting financial and descriptive
information about an enterprise's operating segments in its annual financial
statements and selected segment information in interim financial reports.
Comparative information for interim periods of fiscal 1998 will be restated to
conform with the provision of SFAS 131 and will be reported in the Company's
interim financial statements in fiscal 1999. Application of the disclosure
requirements of SFAS 131 will have no impact on the Company's consolidated
financial position, results of operations or earnings per share data as
currently reported.

     NEW ACCOUNTING STANDARD

     In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"),
which is effective for all quarters of fiscal years beginning after June 15,
1999. SFAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. In accordance with SFAS 133, an entity is
required to recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
SFAS 133 requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
that a company formally document, designate, and assess the effectiveness of
transactions that receive hedge accounting. The Company has not determined the
timing or method of adoption and is currently evaluating the effect that
implementation of SFAS 133 will have on its results of operations and financial
position.

NOTE 2--DISCONTINUED OPERATIONS

     In accordance with Accounting Principles Board Opinion No. 30, "Reporting
the Results of Operations--Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions," Chiron Diagnostics and Chiron


                                      11
<PAGE>

                               CHIRON CORPORATION
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               SEPTEMBER 30, 1998
                                   (UNAUDITED)

NOTE 2--DISCONTINUED OPERATIONS (CONTINUED)

Vision are reported as discontinued operations for all periods presented in the
accompanying Condensed Consolidated Statements of Operations.

     On September 17, 1998 Chiron and Bayer Corporation ("Bayer") entered into a
definitive agreement pursuant to which Chiron has agreed to sell its in vitro
diagnostics business to Bayer for approximately $1,013.8 million in cash,
subject to certain post-closing adjustments. The consummation of the transaction
is subject to standard closing conditions, including receipt of required
regulatory approvals, and is expected to occur in the fourth quarter of 1998.
The agreement provides for customary post-closing indemnities.

     Under the terms of the agreement, Chiron will retain (i) its blood testing 
business, including certain aspects of its alliance with Gen-Probe, 
Incorporated, (ii) its joint business with Ortho-Clinical Diagnostics, Inc., 
and (iii) its information technology ("informatics") business. Chiron also will 
retain its hepatitis and retrovirus patents and know-how.

     Upon the closing of the sale of Chiron Diagnostics, Chiron and Bayer intend
to enter into certain agreements related to the licensing of certain patent
rights and know-how owned or controlled by Chiron. In addition, on September 25,
1998 Chiron and Bayer signed a technology license and option agreement for
Bayer's use and distribution of software and related systems and services
developed by Chiron's informatics business.

     Management estimates that a net gain will result from disposal of Chiron
Diagnostics. In accordance with Emerging Issues Task Force Issue No. 93-17,
"Recognition of Deferred Tax Assets for a Parent Company's Excess Tax Basis in
the Stock of a Subsidiary That Is Accounted for as a Discontinued Operation"
("EITF 93-17") and SFAS No. 109, "Accounting for Income Taxes" ("SFAS 109"), in
the third quarter of 1998, Chiron reduced its valuation allowance related to
Chiron Diagnostics' domestic and foreign deferred tax assets by $45.5 million as
the definitive agreement with Bayer makes it more likely than not that the
deferred tax assets will be realized. The corresponding credit is reflected in
the accompanying Condensed Consolidated Statements of Operations as "Gain on
disposal of discontinued operations."

     On December 29, 1997, Chiron completed the sale of all of the outstanding
capital stock of Chiron Vision, a wholly owned subsidiary, to Bausch & Lomb
Incorporated ("B&L") for approximately $300.0 million in cash, subject to
certain post-closing adjustments. The sale was completed under the terms of a
Stock Purchase Agreement, dated as of October 21, 1997, between Chiron and B&L.
Chiron Vision's cash and cash equivalents totaling $2.7 million, certain Chiron
Vision real estate assets (the "real estate assets") with a carrying value of
$25.1 million and Chiron


                                      12
<PAGE>

                               CHIRON CORPORATION
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               SEPTEMBER 30, 1998
                                   (UNAUDITED)

NOTE 2--DISCONTINUED OPERATIONS (CONTINUED)

Vision's future noncancelable operating lease costs totaling $1.1 million were
retained by the Company upon completion of the sale. Additionally, the Company
agreed to provide customary indemnities under the terms of the agreement.

     For a period of three years following the completion of the sale, Chiron 
Vision has the right to use a portion of the real estate assets which were 
occupied at closing on a rent-free basis. As of September 30, 1998, the real 
estate assets are recorded in the accompanying Condensed Consolidated Balance 
Sheet as "Assets held for sale." In the first quarter of 1998, the Company 
recorded a $13.6 million adjustment to record the real estate assets at their 
estimated fair value, determined on the basis of independent appraisals, less 
cost to sell. This adjustment was recorded as a reduction to the "Gain on 
disposal of discontinued operations" in the accompanying Condensed 
Consolidated Statements of Operations for the nine months ended September 30, 
1998.

     Chiron Diagnostics recognized total revenues of $134.6 million and 
$412.8 million for the three and nine months ended September 30, 1998, 
respectively. Chiron Diagnostics and Chiron Vision collectively recognized 
total revenues of $191.1 million and $588.0 million for the three and nine 
months ended September 30, 1997, respectively. "Income (loss) from 
discontinued operations" in the accompanying Condensed Consolidated 
Statements of Operations is reported net of a provision for income taxes of 
less than $0.1 million for the three months ended September 30, 1998 and an 
income tax benefit of $3.0 million for the three months ended September 30, 
1997. For the nine months ended September 30, 1998 and 1997, "Income (loss) 
from discontinued operations" is reported net of a provision for income taxes 
of $3.0 million and $4.2 million, respectively. Additionally, "Income (loss) 
from discontinued operations" includes approximately $1.2 million of net 
income from operations recognized by Chiron Diagnostics from September 17, 
1998 to September 27, 1998. "Gain on disposal of discontinued operations" in 
the accompanying Condensed Consolidated Statements of Operations for the nine 
months ended September 30, 1998 is reported net of a provision for income 
taxes of $31.2 million on the disposal of Chiron Vision and the Chiron 
Diagnostics' deferred tax benefit of $45.5 million described above.

     For the three months ended September 30, 1998, basic and diluted earnings
per common share from discontinued operations was $0.28. For the three months
ended September 30, 1997, basic and diluted earnings per common share from
discontinued operations was $0.04. For the nine months ended September 30, 1998,
basic and diluted earnings per common share from discontinued operations were
$0.58 and $0.57, respectively. For the nine months ended September 30, 1997,
basic and diluted earnings per common share from discontinued operations were
$0.10 and $0.09, respectively.


                                      13
<PAGE>

                               CHIRON CORPORATION
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               SEPTEMBER 30, 1998
                                   (UNAUDITED)

NOTE 2--DISCONTINUED OPERATIONS (CONTINUED)

     The accompanying Condensed Consolidated Balance Sheets include the net
assets of discontinued operations, including the Chiron Vision real estate
assets, as follows:

<TABLE>
<CAPTION>                                                         SEPTEMBER 30,     DECEMBER 31,
                                                                      1998              1997
                                                                  -------------     -------------
                                                                            (IN THOUSANDS)
<S>                                                               <C>               <C>
         Accounts receivable, net                                 $     152,928     $     191,701
         Inventories                                                     95,293           122,160
         Assets held for sale                                            11,500                 -
         Property, plant, equipment and leasehold 
           improvements, net                                            214,138           254,001
         Purchased technology, net                                            -            25,068
         Other intangible assets, net                                    15,687            53,925
         Accounts payable and other current liabilities                 (43,317)         (113,518)
         Other assets and liabilities, net                              (88,798)          (71,157)
                                                                  --------------    -------------
                                                                  $     357,431     $     462,180
                                                                  --------------    -------------
                                                                  --------------    -------------
</TABLE>

NOTE 3--RESTRUCTURING AND REORGANIZATION CHARGES

     For the first nine months of 1998, Chiron recognized net restructuring and
reorganization charges of $11.3 million, which included a third-quarter charge
of $6.4 million, a second-quarter benefit of $2.6 million, and a first-quarter
charge of $7.5 million. The third-quarter charge of $6.4 million consisted of
$3.8 million of termination and other employee-related costs in connection with
the planned elimination of 46 positions in sales, marketing and other
administrative, manufacturing, and research and development functions. The
elimination of these positions is due primarily to the planned integration of
the Company's worldwide vaccines operations as well as the Company's ongoing
rationalization of business operations. In connection with the plan of
termination, 9 employees were terminated during the quarter ended September 30,
1998 and benefits of $0.2 million were paid and charged against the accrual. The
remaining $2.6 million of third-quarter restructuring and reorganization charges
resulted from facility-related costs of which $0.8 million was charged against
the accrual during the quarter. At September 30, 1998, the liability associated
with third-quarter restructuring and reorganization charges was $5.4 million.

     The second-quarter benefit of $2.6 million consisted of a $3.6 million
benefit due to a revised estimate of property and other tax-related accruals
recorded in 1995 in connection with the idling of the Puerto Rico facility, and
charges of $1.0 million consisting of facility-related costs. At September 30,
1998, the liability associated with second-quarter charges was $0.3 million.

     The first-quarter charge of $7.5 million consisted of $5.8 million of
termination and other employee-related costs in connection with the planned
elimination of 129 positions in sales, marketing and other administrative,
manufacturing, and research and development functions. The elimination of these
positions is due primarily to the Company's ongoing rationalization of business
operations related to the closure of the Company's Puerto Rico and St. Louis
facilities. In


                                     14
<PAGE>

                               CHIRON CORPORATION
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               SEPTEMBER 30, 1998
                                   (UNAUDITED)

NOTE 3--RESTRUCTURING AND REORGANIZATION CHARGES (CONTINUED)

connection with the plan of termination, all 129 employees were terminated 
during the first nine months of 1998 and benefits of $3.4 million were paid 
and charged against the accrual. The remaining $1.7 million consisted of 
facility-related costs of which $1.5 million was charged against the accrual 
during the first nine months of 1998. At September 30, 1998, the liability 
associated with the first-quarter charge was $2.6 million.

     The liabilities related to restructuring and reorganization charges are 
expected to be substantially settled within twelve months of accruing the 
related charges. The Company anticipates that it will incur future 
restructuring and reorganization expenses in the fourth quarter of 1998 as it 
continues to create a simpler, more efficient operating structure for the 
organization.

NOTE 4--GAIN ON SALE OF ASSETS

     In March 1998, the Company committed to plans to sell its idle 
pharmaceutical fill and finishing facility in Puerto Rico and its 
manufacturing facility in St. Louis, Missouri and the related machinery and 
equipment for each facility. These plans were made in response to Chiron's 
ongoing analysis of manufacturing capacity relative to its projected needs. 
The resulting adjustment in the first quarter of 1998 to record these assets 
at the lower of their aggregate carrying amount or estimated fair value, 
determined on the basis of independent appraisals, less cost to sell, was 
insignificant.

     In August 1998, the Company sold its St. Louis facility and related 
machinery and equipment assets to Genetics Institute Inc. for $19.8 million 
in cash. The sale of the St. Louis facility resulted in a net gain of $1.5 
million, which was included in the "Gain on sale of assets" in the 
accompanying Condensed Consolidated Statements of Operations for the three 
and nine months ended September 30, 1998. At the time of sale, the carrying 
amount of the St. Louis facility was $18.3 million. Included in the Company's 
"Income from operations" in the accompanying Condensed Consolidated 
Statements of Operations for the nine months ended September 30, 1998 were 
$3.2 million of operating expenses incurred through the date of disposal. 
Operating expenses incurred during the quarter ended September 30, 1998 were 
insignificant. In 1997, operating expenses were $2.7 million and $9.3 million 
for the three and nine months ended September 30, 1997, respectively.

     In June 1998, the Company sold its Puerto Rico facility and related 
machinery and equipment assets to IPR Pharmaceuticals, Inc. for $18.5 million 
in cash. The sale of the Puerto Rico facility resulted in a net gain of $6.2 
million, which was included in the "Gain on sale of assets" in the 
accompanying Condensed Consolidated Statements of Operations for the nine 
months ended September 30, 1998. At the time of sale, the carrying amount of 
the Puerto Rico facility was $11.1 million. Included in the Company's "Income 
from operations" in the accompanying Condensed Consolidated Statements of 
Operations for the nine months ended September 30, 1998, were $2.1 million of 
operating expenses incurred through the date of disposal. In 1997, these 
operating expenses were $2.1 million and $6.3 million for the three and nine 
months ended September 30, 1997, respectively.


                                      15
<PAGE>

                               CHIRON CORPORATION
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               SEPTEMBER 30, 1998
                                   (UNAUDITED)

NOTE 5--AGREEMENT WITH HOECHST AG

     Effective July 1, 1996, Chiron purchased a 49-percent interest in the human
vaccine business of Behringwerke AG, which subsequently merged into its parent
company, Hoechst AG. During the period of mutual ownership and through the first
quarter of 1998, Chiron and Hoechst AG operated the vaccine business as a joint
venture. Chiron accounted for its interest under the equity method and
recognized $2.4 million for the three months ended March 31, 1998, and $3.5
million and $9.7 million for the three and nine months ended September 30, 1997,
respectively, as components of "Equity in earnings of unconsolidated joint
businesses" in the accompanying Condensed Consolidated Statements of Operations.
Summarized statement of operations information for Chiron Behring during the
period of mutual ownership and through the first quarter of 1998, which excludes
Chiron's amortization of intangible assets recorded in the July 1996
acquisition, is as follows:

<TABLE>
<CAPTION>
                                                           THREE MONTHS      THREE MONTHS        NINE MONTHS
                                                               ENDED             ENDED              ENDED
                                                              MARCH 31,        SEPT. 30,          SEPT. 30,
                                                                1998              1997              1997
                                                          -------------    ------------------   -----------
                                                                             (IN THOUSANDS)
       <S>                                                <C>              <C>                  <C>
       Net sales                                          $      36,356    $      51,683        $    135,721
       Gross profit                                       $      21,075    $      18,215        $     72,604
       Income from continuing operations before
         extraordinary items and cumulative effect
         of a change in accounting principle              $       6,213    $      10,389        $     29,566
       Net income                                         $       6,213    $      10,389        $     29,566

</TABLE>

     Prior to December 1997, Chiron's share of the joint venture's results were
reported on a one-month lag. As a result, Chiron's equity in earnings of Chiron
Behring for the third quarter and first nine months of 1997 was calculated
based, in part, on the joint venture's net income for the three and nine months
ended August 31, 1997 of $9.0 million and $23.2 million, respectively, rather
than the net income of $10.4 million and $29.6 million for the three and nine
months ended September 30, 1997, respectively, reflected above.

     On March 31, 1998, Chiron acquired Hoechst AG's 51-percent interest in
Chiron Behring. The acquisition was accounted for under the purchase method of
accounting. The purchase price of approximately $113.1 million was allocated to
the acquired assets and liabilities assumed based upon their estimated fair
value on the acquisition date. In connection with the acquisition, liabilities
were assumed as follows:

<TABLE>
<CAPTION>
                                                                          (IN THOUSANDS)
         <S>                                                              <C>
         Cash acquired                                                    $      57,119
         Fair value of all other assets acquired                                206,922
         Carrying value of original investment in Chiron Behring               (117,157)
         Cash paid                                                             (111,889)
         Acquisition costs                                                       (1,180)
                                                                          -------------
         Liabilities assumed                                              $      33,815
                                                                          -------------
                                                                          -------------
</TABLE>


                                      16
<PAGE>

                               CHIRON CORPORATION
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               SEPTEMBER 30, 1998
                                   (UNAUDITED)

NOTE 5--AGREEMENT WITH HOECHST AG (CONTINUED)

     At the time of acquisition, Chiron recognized as an expense, the amount of
the purchase price allocated to purchased in-process technologies. The resulting
charge against earnings of approximately $1.6 million was included in the
Company's results of operations for the nine months ended September 30, 1998.
Other purchased intangible assets of approximately $135.0 million, including
goodwill, trademarks, patents and customer list, are being amortized over their
estimated useful lives of 4 to 18 years on a straight-line basis. The results of
operations of Chiron Behring were included in Chiron's consolidated operating
results beginning in the second quarter of 1998.

     The following unaudited pro forma information presents the results of
continuing operations of Chiron and Chiron Behring for the three months ended
September 30, 1997 and the nine months ended September 30, 1998 and 1997, with
pro forma adjustments as if Chiron's acquisition of the remaining 51-percent
interest in Chiron Behring had been consummated as of January 1, 1997. Given the
Company's acquisition of the remaining 51-percent interest in, and consolidation
of, Chiron Behring effective March 31, 1998, pro forma information for the three
months ended September 30, 1998 is not applicable. The pro forma information
does not purport to be indicative of what would have occurred had the
acquisition been made as of those dates or of results which may occur in the
future. In addition, the pro forma information for the three months ended
September 30, 1997 and the nine months ended September 30, 1998 and 1997, does
not include the write-off of purchased in-process technologies of $1.6 million
(the "non-recurring charge") related to the acquisition of the remaining
51-percent interest in Chiron Behring, which is reflected in the Company's
results as reported for the nine months ended September 30, 1998. The unaudited
pro forma information is as follows:

<TABLE>
<CAPTION>
                                                         THREE MONTHS       NINE MONTHS          NINE MONTHS
                                                             ENDED             ENDED                ENDED
                                                            SEPT. 30,         SEPT. 30,            SEPT. 30,
                                                              1997              1998                 1997
                                                         -------------    ----------------        -----------
                                                                   (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                      <C>              <C>                     <C>
Total revenues                                           $  194,641          $ 546,108            $ 539,572
Income (loss) from continuing operations
  before the non-recurring charge                        $  (12,681)         $  63,688            $  14,483
Pro forma income (loss) per share from continuing
  operations before the non-recurring charge:
  Basic                                                  $    (0.07)         $    0.36            $    0.08
  Diluted                                                $    (0.07)         $    0.35            $    0.08
</TABLE>

     As discussed in Note 1, the fiscal year of the Company is a 52 or 53-week
year ending on the Sunday nearest the last day in December of each year. Chiron
Behring, however, is accounted for on a calendar year basis, which may not
coincide with the Company's quarter-end and year-end periods.


                                      17
<PAGE>

                               CHIRON CORPORATION
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               SEPTEMBER 30, 1998
                                   (UNAUDITED)

NOTE 6--LICENSE FEE REVENUES

     In the third quarter of 1998, the Company issued a non-exclusive license
related to certain technologies used to produce recombinant antigens for human
vaccine products. In connection with this license agreement, the Company
received a one-time license issuance fee of $24.0 million which was included in
"Royalty and license fee revenues" in the accompanying Condensed Consolidated
Statements of Operations for the three and nine months ended September 30, 1998.
The license agreement also provides Chiron with future royalties on sales of
products using the specified technologies.

NOTE 7--AGREEMENT WITH INTERNATIONAL BUSINESS MACHINES CORPORATION

     Effective July 1, 1998, Chiron and International Business Machines
Corporation ("IBM") executed a ten-year information technology services
agreement. Under this agreement, IBM will provide Chiron with a full range of
information services, including designing and deploying a company-wide
distributed network system, establishing a comprehensive help-desk operation,
and developing a standardized desk-top platform using IBM workstations. Chiron
may terminate this agreement beginning July 1, 1999 subject to certain
termination charges. Through July 1, 1999, Chiron's payments to IBM will total
$19.3 million. If Chiron does not terminate this agreement prior to expiration,
payments to IBM are expected to be approximately $138.8 million in the
aggregate. Payments to IBM are subject to adjustment depending upon the levels
of services and infrastructure equipment provided by IBM.

NOTE 8--PURCHASE OF MANUFACTURING AND ADMINISTRATIVE FACILITIES

     On July 16, 1998, the Company completed the purchase of its manufacturing
and administrative facilities in Siena, Italy, which were previously under
lease. The net purchase price of 34.8 billion Italian lira (approximately $21.4
million), is included as components of "Land and buildings" and "Leasehold
improvements" in the Company's consolidated balance sheet at September 30, 1998.

NOTE 9--AGREEMENT WITH GEN-PROBE, INCORPORATED

     In the third quarter of 1998, Chiron and Gen-Probe, Incorporated 
("Gen-Probe") a wholly owned subsidiary of Chugai Pharmaceutical Co., Ltd., 
signed an agreement to form a strategic alliance to develop, manufacture and 
market nucleic acid probe assay systems for blood testing and certain areas 
of diagnostics. Under the terms of the agreement, Chiron will market and sell 
products that utilize the Company's intellectual property relating to 
hepatitis C ("HCV") and human immunodeficiency virus ("HIV") and Gen-Probe's 
patented transcription-mediated amplification, target capture, hybridization 
protection assay and dual kinetic assay technologies. In addition, the 
technology rights acquired from Gen-Probe are anticipated to be utilized 
across a broad base of marker technology within the Company's blood testing 
and diagnostics businesses. In exchange for the rights to Gen-Probe's 
technology, Chiron paid $10.0 million upon signing the agreement, which was 
recorded as a component of "Other intangible assets, net" in the Company's 
consolidated balance sheet at September 30, 1998. Chiron's future milestone 
payment obligations to Gen-Probe consist of a $15.0

                                      18
<PAGE>

                               CHIRON CORPORATION
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               SEPTEMBER 30, 1998
                                   (UNAUDITED)

NOTE 9--AGREEMENT WITH GEN-PROBE, INC. (CONTINUED)

million payment due within 30 days after Gen-Probe's submission of an 
investigational new drug application to the Food and Drug Administration 
("FDA") for its automated HCV/HIV assay for blood testing and another $10.0 
million upon Gen-Probe's receipt of marketing approval from the FDA for such 
products. As part of the sale of Chiron Diagnostics, Chiron will transfer to 
Bayer certain technologies obtained in the Gen-Probe agreement as it relates to 
in vitro diagnostics and will retain the technologies related to blood testing. 
As a result, upon the completion of the sale of Chiron Diagnostics, Bayer will 
assume $6.5 million of the $15.0 million obligation discussed above. The 
agreement with Gen-Probe also provides certain provisions for additional cost 
sharing and royalties upon the commercialization of specified products.

NOTE 10--CONTINGENCIES

     The Company is party to various claims, investigations and legal 
proceedings arising out of the normal course of its business. These claims, 
investigations and legal proceedings relate to intellectual property rights, 
contractual rights and obligations, employment matters, shareholder derivative 
claims, claims of product liability, and other issues. While there can be no 
assurance that an adverse determination of any such matters could not have a 
material adverse impact in any future period, management does not believe, 
based upon information known to it, that the final resolution of any of these 
matters will have a material adverse effect upon the Company's consolidated 
financial position and annual results of operations and cash flows.


                                      19
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

                               CHIRON CORPORATION

OVERVIEW

     THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS.
THESE INCLUDE STATEMENTS CONCERNING PLANS, OBJECTIVES, GOALS, STRATEGIES, FUTURE
EVENTS OR PERFORMANCE AND ALL OTHER STATEMENTS WHICH ARE OTHER THAN STATEMENTS
OF HISTORICAL FACT, INCLUDING, WITHOUT LIMITATION, STATEMENTS CONTAINING WORDS
SUCH AS "BELIEVES," "ANTICIPATES," "EXPECTS," "ESTIMATES", "PROJECTS", "WILL,"
"MAY," "MIGHT," AND WORDS OF A SIMILAR NATURE. FORWARD-LOOKING STATEMENTS
INVOLVE RISKS AND UNCERTAINTIES WHICH COULD CAUSE ACTUAL RESULTS, PERFORMANCE OR
OUTCOMES TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN THE FORWARD-LOOKING
STATEMENTS. IN ADDITION TO OTHER FACTORS AND MATTERS DISCUSSED ELSEWHERE HEREIN,
SOME OF THE IMPORTANT FACTORS WHICH, IN THE VIEW OF CHIRON CORPORATION ("CHIRON"
OR THE "COMPANY"), COULD CAUSE ACTUAL RESULTS TO DIFFER FROM THOSE EXPRESSED IN
THE FORWARD-LOOKING STATEMENTS ARE DISCUSSED UNDER THE CAPTION "FACTORS THAT MAY
AFFECT FUTURE OPERATING RESULTS." THE FORWARD-LOOKING STATEMENTS CONTAINED IN
THIS REPORT REFLECT MANAGEMENT'S CURRENT BELIEFS AND EXPECTATIONS ON THE DATE OF
THIS REPORT; THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY ANNOUNCE ANY
REVISIONS TO THESE FORWARD-LOOKING STATEMENTS TO REFLECT FACTS OR CIRCUMSTANCES
OF WHICH MANAGEMENT BECOMES AWARE AFTER THE DATE HEREOF.

     THE DISCUSSION BELOW SHOULD BE READ IN CONJUNCTION WITH PART I, ITEM 1, 
"FINANCIAL STATEMENTS," OF THIS QUARTERLY REPORT ON FORM 10-Q AND PART II, 
ITEMS 7, 7A AND 8, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 
CONDITION AND RESULTS OF OPERATIONS," "QUANTITATIVE AND QUALITATIVE 
DISCLOSURES ABOUT MARKET RISK" AND "FINANCIAL STATEMENTS AND SUPPLEMENTARY 
DATA," RESPECTIVELY, OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR 
ENDED DECEMBER 28, 1997.

     Chiron is a leading biotechnology company that develops, manufactures and 
markets human healthcare products for the prevention and treatment of disease 
utilizing innovations in biology and chemistry. Chiron participates in three 
human healthcare markets: (i) therapeutics, with an emphasis on oncology, 
serious infectious diseases and cardiovascular diseases; (ii) adult and 
pediatric vaccines; and (iii) blood testing. Chiron also conducts research and 
development in the fields of recombinant technology, gene therapy, vaccines, 
small molecule therapeutics and genomics.

     On December 29, 1997, Chiron completed the sale of its ophthalmic 
business unit, Chiron Vision Corporation ("Chiron Vision"), to Bausch & Lomb 
Incorporated ("B&L") and on September 17, 1998, Chiron and Bayer Corporation 
("Bayer") entered into a definitive agreement pursuant to which Chiron agreed 
to sell its in vitro diagnostics business to Bayer. Under the terms of the 
agreement, Chiron will retain (i) its blood testing business, including 
certain aspects of its alliance with Gen-Probe, Incorporated, (ii) its joint 
business with Ortho-Clinical Diagnostics, Inc., and (iii) its information 
technology ("informatics") business. The sale is subject to standard closing 
conditions and is anticipated to be completed by the end of 1998. As a result 
of these transactions, the Company's condensed consolidated statements of 
operations reflect the after-tax results of Chiron Diagnostics and Chiron 
Vision, and the related gain on disposal thereof, as discontinued operations 
for all periods presented.


                                       20
<PAGE>

RESULTS OF OPERATIONS

REVENUES

     The Company's revenues are derived from a variety of sources, including
product sales, joint business arrangements, collaborative agreements and product
royalty agreements. Product sales, Chiron's largest revenue category, consists
of the following product lines:

<TABLE>
<CAPTION>
                                      THREE MONTHS ENDED          NINE MONTHS ENDED
                                          SEPTEMBER 30               SEPTEMBER 30
                                     ----------------------     ---------------------
                                        1998         1997         1998         1997
                                     ---------     --------     --------     --------
                                                       (IN THOUSANDS)
          <S>                        <C>           <C>          <C>          <C>
          Therapeutic products        $ 46,827     $ 40,834     $144,119     $105,610
          Vaccine products              60,673       16,386      119,114       52,096
          Blood testing products         5,313        4,860       14,858       15,384
                                      --------     --------     --------     --------
                                      $112,813     $ 62,080     $278,091     $173,090
                                      --------     --------     --------     --------
                                      --------     --------     --------     --------
</TABLE>

     Sales of certain of the Company's vaccine products, particularly flu
vaccine, are seasonal, with higher sales in the fourth quarter of the year. As a
result, Chiron's results in any one quarter are not necessarily indicative of
results to be expected for a full year.

     THERAPEUTIC PRODUCTS Sales of Proleukin-Registered Trademark- 
(aldesleukin, interleukin-2) increased $5.1 million and $15.8 million in the 
third quarter and first nine months of 1998, respectively, as compared with the 
corresponding periods in 1997, due to (i) domestic sales price increases, and 
(ii) volume increases attributable to continued growth in existing indications 
and the expanded use of Proleukin-Registered Trademark- for the new indication 
of metastatic melanoma. Also contributing to the overall increase in 
Proleukin-Registered Trademark- sales was an increase in vials sold in European 
markets and the geographic expansion of Proleukin-Registered Trademark- into 
other countries.

     Under the terms of a development and supply agreement with Schering AG, 
Germany ("Schering AG"), and its U.S. affiliate, Berlex Laboratories, Inc. 
("Berlex"), Chiron manufactures Betaseron-Registered Trademark- (Interferon 
beta-1b) for Berlex and Schering AG. Under the terms of the agreement, Chiron 
earns an initial partial payment for Betaseron-Registered Trademark- upon 
shipment to Berlex and Schering AG and a subsequent secondary payment for 
Betaseron-Registered Trademark- upon net sales of the product to patients. 
Beginning July 1997, the terms of payment changed, with a larger portion due 
when sales are realized rather than at the time of initial shipment. The 
increase in Betaseron-Registered Trademark- product sales in the third quarter 
and first nine months of 1998 of $1.0 million and $4.2 million, respectively, 
reflects the change in payment terms described above and an increase in vials 
sold to Berlex and Schering AG. The timing of future shipments to Berlex and 
the related revenue may vary based upon the inventory management practices of 
Berlex. A contractual decrease in the total payments received by Chiron for the 
manufacture of Betaseron-Registered Trademark- will occur in October 1998. This 
contractual decrease is not anticipated to impact Betaseron-Registered 
Trademark-product sales until December 1998 when the secondary revenues are 
recognized. Secondary revenues earned by Chiron represent only part of the 
total revenues derived from Betaseron-Registered Trademark- sales by Berlex and 
Schering AG.

     Revenues derived from PDGF (recombinant human platelet-derived growth 
factor -rhPDGF-BB), which were first recognized in the third quarter of 1997, 
contributed $7.1 million and $25.0 million to Chiron's net product sales in 
the third quarter and first nine months of 1998, respectively. PDGF is the 
active ingredient in 

                                       21
<PAGE>

Johnson & Johnson's Regranex-Registered Trademark- (becaplermin) Gel, a 
treatment for diabetic foot ulcers. Of the total PDGF revenues recognized 
during the first nine months of 1998, approximately $10.5 million resulted 
from a contractual price adjustment primarily related to Chiron's 1997 sales, 
and approximately $14.5 million was attributable to 1998 shipments. Future 
price adjustments are not expected to be at levels commensurate with those in 
the first nine months of 1998. As PDGF is the first product of its kind, the 
Company believes it will take time for the market to fully develop. Although 
sales of Regranex-Registered Trademark- are growing and end user demand 
appears strong, Chiron's sales to date have primarily filled Johnson & 
Johnson's inventory. As a result, no sales of PDGF to Johnson & Johnson are 
expected in the first half of 1999.

     VACCINE PRODUCTS Vaccine product sales consist principally of sales by 
Chiron Behring GmbH & Co ("Chiron Behring") and by Chiron's Italian 
subsidiary in Germany, Italy and certain other international markets. Vaccine 
product sales in the third quarter and first nine months of 1998 increased by 
$44.3 million and $67.0 million, respectively, as compared with the 
corresponding periods in 1997, due to Chiron's acquisition of the remaining 
51-percent interest in, and consolidation of, Chiron Behring effective March 
31, 1998. Decreased sales of the Company's oral polio vaccines in the third 
quarter and first nine months of 1998 as compared with the same periods of 
the prior year were largely offset by increased vaccine sales of haemophilus 
influenzae type B ("HIB"), which largely began in 1998. The resolution of the 
supply constraints related to the Company's oral polio vaccine experienced in 
1997, and through much of 1998, resulted in an increase in third quarter 
sales as compared with the first and second quarters of 1998. Further 
increases in sales of oral polio are expected in the fourth quarter of 1998. 
The Company anticipates increased competitive pressures related to many of 
its vaccine products due to the introduction of competitive products into the 
market.

     CHIRON-ORTHO JOINT BUSINESS Equity in earnings of unconsolidated joint 
businesses consists substantially of Chiron's one-half interest in the pretax 
operating earnings of its joint immunodiagnostic and blood testing business 
with Ortho-Clinical Diagnostics, Inc. ("Ortho"), a Johnson & Johnson company. 
The joint business sells a full line of tests required to screen blood for 
hepatitis viruses and retroviruses, and provides supplemental tests and 
microplate-based instrument systems to automate test performance and data 
collection. The joint business also holds the immunodiagnostic rights to 
Chiron's hepatitis and retrovirus technology and receives royalties from 
several companies, including Abbott Laboratories, Pasteur Sanofi Diagnostics 
and Genelabs Diagnostic, Inc., for their sales of certain tests. Chiron has 
agreed to sell its immunodiagnostic instrument business to Bayer subject to 
the rights of Ortho with respect to hepatitis and retrovirus immunoassays.

     In the third quarter and first nine months of 1998, Chiron's share of the
pretax operating earnings of the joint business decreased by $2.0 million and
$20.8 million, respectively, as compared with the corresponding periods in 1997.
The decrease between quarters is due primarily to lower foreign sales, offset in
part, by lower research and development spending in 1998 as compared with 1997.
The operating earnings of the joint business are recorded by Chiron on a
one-month lag based upon estimates supplied by Ortho, which are subject to a
final adjustment 90 


                                       22
<PAGE>

days after the end of each calendar year (the "final annual accounting"). With 
respect to the first nine months of 1998, the final annual accounting for 1997 
resulted in a $4.1 million charge as compared with $0.8 million of income in 
1997 from the final accounting for 1996. In addition, other items contributing 
approximately $12.1 million to the decrease in earnings for the nine months 
ended September 30, 1998 as compared with the same period in 1997 were (i) 
lower foreign profits of the joint business; (ii) certain one-time contract 
termination fees; (iii) the adverse impact of changes in foreign currency 
exchange rates between years; and (iv) certain joint business asset write-offs 
related to the implementation of certain processes to comply with stricter Food 
and Drug Administration ("FDA") guidelines mandated throughout the industry.

     AGREEMENT WITH HOECHST AG From the date of acquisition through the first
quarter of 1998, equity in earnings of unconsolidated joint businesses included
Chiron's 49-percent share of the after-tax operating results of Chiron Behring,
which was acquired in July 1996. Chiron's share of earnings of the joint
venture, including amortization of intangibles, was $2.4 million in the first
quarter of 1998 and $3.5 million and $9.7 million in the third quarter and first
nine months of 1997, respectively. Refer to Note 5 of NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.

     In the second quarter of 1998, Chiron acquired Hoechst AG's 51-percent
interest in Chiron Behring. The acquisition of Chiron Behring was accounted for
under the purchase method of accounting. The purchase price of approximately
$146.9 million, which included approximately $1.2 million of acquisition costs,
$33.8 million of liabilities assumed, and $111.9 million of cash paid, was
allocated to the acquired assets and liabilities assumed based upon their
estimated fair value on the acquisition date. At the time of acquisition, Chiron
recognized as an expense, the amount of the purchase price allocated to
purchased in-process technologies. The resulting charge against earnings of
approximately $1.6 million was included in the Company's results of operations
for the nine months ended September 30, 1998. Other purchased intangible assets
of approximately $135.0 million, including goodwill, trademarks, patents and
customer list, are being amortized over their estimated useful lives of 4 to 18
years on a straight-line basis. The results of operations of Chiron Behring were
included in Chiron's consolidated operating results beginning in the second
quarter of 1998.

     COLLABORATIVE AGREEMENT REVENUES Collaborative agreement revenues consist
of fees received for research services as they are performed, proceeds from
sales of product rights, proceeds from sales of biological materials to research
partners for preclinical and clinical testing, and fees received upon attainment
of benchmarks specified in the related research agreements. Collaborative
agreement revenues for the third quarter and first nine months of 1998 decreased
$12.2 million and $19.3 million, respectively, as compared with the same periods
of 1997, due largely to decreased revenues recognized under collaborative
agreements with (i) Japan Tobacco for combinatorial chemistry technologies used
for drug discovery; (ii) Green Cross of Japan for human immunodeficiency virus
("HIV") gene therapy research and clinical development; and (iii) Janssen
Pharmaceutica, N.V. for the development and use of combinatorial libraries. In
light of these decreases and unless new collaborative arrangements are made,
management does not expect future collaborative agreement revenues to be at
levels commensurate with that in 1997.

     Collaborative agreement revenues also include research and development
funding from Novartis AG ("Novartis"). Under a December 1995 limited liability
company agreement, as amended, Chiron recognized collaborative agreement
revenues of $15.6 million and $16.5 million for the third quarters of 1998 and
1997, respectively. For the first nine months of 1998 and 1997, Chiron
recognized $47.2 million and $50.3 million, respectively. Future revenues under
the December 1995 limited liability company agreement, as amended, are not
expected to exceed 


                                       23
<PAGE>

$62.3 million in 1998 and $50.3 million (plus any unused portion of the 
funding limit for 1998) in 1999.

     ROYALTY AND LICENSE FEE REVENUES Royalty and license fee revenues consist 
of license fees related to certain technologies, royalty revenues resulting 
from Schering AG's sales of interferon beta in Europe under the name 
Betaferon-Registered Trademark-, and, beginning in the second quarter of 1998, 
royalty revenues generated by Chiron Behring. In the third quarter of 1998 and 
1997, royalty and license fee revenues were $49.8 million and $13.0 million, 
respectively. The overall increase in royalty and license fee revenues is 
largely due to (i) a $24.0 million license fee related to certain technologies 
used in human vaccine products (see discussion below); (ii) $3.4 million 
generated by Chiron Behring, consisting primarily of ongoing royalties from 
hepatitis B vaccines ("HBV"); and (iii) $6.1 million of first-time royalties 
related to sales of PCR products (see below). For the first nine months of 1998 
and 1997, Chiron recognized royalty and license fee revenues of $81.3 million 
and $37.1 million, respectively. In addition to the third-quarter items 
discussed above, the increase in royalty and license fee revenues for the nine 
months ended September 30, 1998 as compared with the corresponding period in 
1997 is related to (i) an increase of $3.2 million in royalty revenues 
resulting from Schering AG's European sales of Betaferon-Registered Trademark-; 
and (ii) a one-time $5.0 million license fee received from Pharmacia & Upjohn 
Company (see discussion below). Partially offsetting the increases discussed 
above for the nine months ended September 30, 1998, is an aggregate decrease of 
$1.8 million from royalties on sales by Merck & Co., Inc. for HBV vaccines and 
by Novo Nordisk for insulin and glucagon. A significant contractual decrease in 
royalties related to insulin will occur in January 1999.

     In August 1998, Chiron recognized $24.0 million of royalty and license fee 
revenues from a one-time license fee under a non-exclusive license agreement 
related to certain technologies used in human vaccine products. This agreement 
also provides Chiron with ongoing royalties on product sales using these 
technologies. For the quarter ended September 30, 1998, Chiron recognized $1.4 
million of royalty and license fee revenues related to these ongoing royalties. 
In addition, in the third quarter of 1998, Chiron received a first-time payment 
of $6.1 million related to ongoing royalties related to sales of PCR products.

     In January 1998, Chiron recognized $5.0 million of royalty and license fee 
revenues from a one-time license fee under an exclusive collaboration with 
Pharmacia & Upjohn Company to research, develop, manufacture and commercialize 
therapeutic and prophylactic products for the treatment of hepatitis C ("HCV") 
in humans. Subject to certain limitations and cancellation clauses, Chiron and 
Pharmacia & Upjohn will share equally in the funding of research activities 
performed under the collaboration agreement. The term of the collaboration is 
three years, subject to extension by mutual consent.

     OTHER REVENUES Other revenues consist principally of promotion and 
co-promotion of Novartis' product Aredia-Registered Trademark- (pamidronate 
disodium for injection), and beginning in the second quarter of 1998, sales 
fees generated by Chiron Behring. Chiron recognized other revenues of $7.9 
million and $6.1 million, for the third quarters of 1998 and 1997, 
respectively, and $28.1 million and $28.2 million for the first nine months of 
1998 and 1997, respectively. On an overall basis, decreases in other revenues 
related to Aredia-Registered Trademark- (see below) were offset by the sales 
fees generated by Chiron Behring.

     A November 1996 agreement with Novartis, executed primarily in connection 
with a consent and agreement that resolved the Federal Trade Commission's 
review of the Ciba-Geigy Ltd. and 


                                       24
<PAGE>

Sandoz Ltd. merger that created Novartis, provided that Chiron, through a 
co-promotion arrangement with Novartis, would promote Aredia-Registered 
Trademark- for two years after a six-month transitional period beginning April 
1997. In December 1997, the co-promotion arrangement with Novartis was 
modified such that Chiron would no longer promote Aredia-Registered Trademark- 
after April 3, 1998. Included in other revenues for the nine months ended 
September 30, 1998, were $9.8 million of revenues earned through April 3, 
1998 related to Aredia-Registered Trademark- co-promotion services as compared 
with $24.1 million in the first nine months of 1997. Prior to April 1997, 
Chiron recognized other revenues from sales fees earned under an agreement 
with Novartis which provided Chiron with sole promotional rights in the U.S. 
to Aredia-Registered Trademark-. Under this exclusive agreement which expired 
in March 1997, Chiron recognized Aredia-Registered Trademark- sales fees of 
$12.5 million in the first quarter of 1997.

COSTS AND EXPENSES

     GROSS PROFIT Gross profit as a percentage of net product sales for the
quarters ended September 30, 1998 and 1997 was 56 percent and 52 percent,
respectively. For the first nine months of 1998 and 1997, gross profit as a
percentage of net product sales was 57 percent and 53 percent, respectively. In
the third quarter of 1998, a $3.3 million reduction in cost of sales was
recognized due to a change in estimated accruals created in prior periods.
Excluding this reduction in cost of sales, gross profit margin would have been
53 percent for the quarter ended September 30, 1998. Also impacting the
Company's gross profit margin for the nine months ended September 30, 1998 was a
$6.0 million reduction in cost of sales due to a change in estimated property
tax accruals created in prior periods. Gross profit margin excluding these items
would have been 53 percent for the nine months ended September 30, 1998.

     Impacting the Company's gross profit margins in 1998 as compared with 1997
are (i) an unfavorable mix of vaccine product sales which, beginning with the
consolidation of Chiron Behring in the second quarter of 1998, includes a
significant portion of in-licensed products with lower gross margins; (ii)
improvements in gross profit margins on domestic sales of Proleukin-Registered
Trademark- due to price increases; and (iii) a 1997 third-quarter charge to cost
of sales for inventory related reserves. In addition, included in cost of sales
in 1997 were operating expenses to maintain the idle Puerto Rico facility which
was sold in the second quarter of 1998. Gross profit margin percentages may
fluctuate significantly in future periods as the Company's product mix continues
to evolve.

     RESEARCH AND DEVELOPMENT Chiron recognized research and development
expenses of $69.4 million and $68.0 million in the third quarters of 1998 and
1997, respectively. For the first nine months of 1998 and 1997, Chiron
recognized research and development expenses of $202.4 million and $193.9
million, respectively. Generally, the Company's research and development
expenses fluctuate from period to period depending upon the extent of clinical
trial-related activities, including the manufacturing of clinical material; the
number of products under development and their progress; and the acquisition of
companies and new technology and licensing rights.

     In the third quarter of 1998, research and development expenses remained
fairly constant despite the consolidation of Chiron Behring in the second
quarter of 1998, which increased third-quarter research and development expenses
by $4.3 million in 1998. For the nine months ended September 30, 1998, Chiron
Behring contributed $8.6 million to the Company's research and development
expenses. In 1998, the Company reduced research and development spending
specifically related to Myotrophin-Registered Trademark- (mecasermin) Injection
(see discussion below), PDGF and 


                                       25
<PAGE>

certain vaccines, including HBV and pertussis vaccines. Partially offsetting 
the reduction in research and development expenses in 1998 were increased 
spending related to genomics, biologics, and cancer targets and mechanisms 
research.

     Myotrophin-Registered Trademark- Injection is being developed by the 
Company in collaboration with Cephalon, Inc. ("Cephalon") as a treatment for 
amyotrophic lateral sclerosis ("ALS" or Lou Gehrig's disease). On May 8, 1997, 
an FDA advisory committee found that there was not sufficient evidence of 
efficacy in the use of Myotrophin-Registered Trademark- Injection for the 
treatment of ALS to warrant FDA approval. In November 1997, Chiron and Cephalon 
withdrew and resubmitted their application to the FDA; this was done at the 
request of the FDA to allow more time for review of the new drug application. 
In May 1998, the FDA issued a letter stating that Myotrophin-Registered 
Trademark- is "potentially approvable," subject to the submission of additional 
information demonstrating that Myotrophin-Registered Trademark- is effective in 
the treatment of ALS. There can be no assurance as to whether this information 
will satisfy the FDA with respect to Myotrophin-Registered Trademark-. Although 
Chiron and Cephalon are continuing their discussions with the FDA and have 
provided the FDA with the requested information, the Company is unable to 
predict when or how the FDA will act. In August 1998, Cephalon and Chiron 
withdrew this joint application of approval to market Myotrophin-Registered 
Trademark- in Europe.

     OTHER OPERATING EXPENSES Selling, general and administrative ("SG&A")
expenses as a percentage of net product sales in the third quarters of 1998 and
1997 were 36 percent and 40 percent, respectively. For the first nine months of
1998 and 1997, SG&A expenses as a percentage of net product sales were 37
percent and 42 percent, respectively. Included in SG&A expenses for the nine
months ended September 30, 1998 and 1997 were $2.0 million and $3.2 million,
respectively, of reductions in SG&A expenses related to changes in estimated
accruals created in prior periods. Selling and marketing expenses continued to
represent the largest portion of total SG&A expenses, as Chiron devoted
significant resources to support sales volumes in its existing product lines as
well as new products. The overall increase in SG&A expenses in the third quarter
and first nine months of 1998 as compared with the corresponding periods in 1997
was due primarily to the consolidation of Chiron Behring in the second quarter
of 1998, which contributed $10.0 million and $23.4 million to SG&A expenses in
the third quarter and first nine months of 1998, respectively. Other increases
in SG&A in the third quarter of 1998 as compared with the third quarter of 1997
consisted of additional sales and marketing expenses to support the growth in
sales and legal fees in defense of certain patents.

     For the first nine months of 1998, Chiron recognized net restructuring and
reorganization charges of $11.3 million, which included a third-quarter charge
of $6.4 million, a second-quarter benefit of $2.6 million, and a first-quarter
charge of $7.5 million. The third-quarter charge of $6.4 million consisted of
$3.8 million of termination and other employee-related costs in connection with
the planned elimination of 46 positions in sales, marketing and other
administrative, manufacturing, and research and development functions. The
elimination of these positions is due primarily to the planned integration of
the Company's worldwide vaccines operations as well as the Company's ongoing
rationalization of business operations. In connection with the plan of
termination, 9 employees were terminated during the quarter ended September 30,
1998 and benefits of $0.2 million were paid and charged against the accrual. The
remaining $2.6 million of third-quarter restructuring and reorganization charges
resulted from facility-related costs of which $0.8 million was charged against
the accrual during the quarter. At September 30, 1998, the liability associated
with third-quarter restructuring and reorganization charges was $5.4 million.

     The second-quarter benefit of $2.6 million consisted of a $3.6 million
benefit due to a revised estimate of property and other tax-related accruals
recorded in 1995 in connection with the idling 


                                       26
<PAGE>

of the Puerto Rico facility, and charges of $1.0 million consisting of 
facility-related costs. At September 30, 1998, the liability associated with 
second-quarter charges was $0.3 million.

     The first-quarter charge of $7.5 million consisted of $5.8 million of
termination and other employee-related costs in connection with the planned
elimination of 129 positions in sales, marketing and other administrative,
manufacturing, and research and development functions. The elimination of these
positions is due primarily to the Company's ongoing rationalization of business
operations related to the closure of the Company's Puerto Rico and St. Louis
facilities. In connection with the plan of termination, all 129 employees were
terminated during the first nine months of 1998 and benefits of $3.4 million
were paid and charged against the accrual. The remaining $1.7 million consisted
of facility-related costs of which $1.5 million was charged against the accrual
during the first nine months of 1998. At September 30, 1998, the liability
associated with the first-quarter charge was $2.6 million.

     The liabilities related to restructuring and reorganization charges are
expected to be substantially settled within twelve months of accruing the
related charges. The Company anticipates that it will incur future restructuring
and reorganization expenses in the fourth quarter of 1998 as it continues to
create a simpler, more efficient cost structure for the organization.

NON-OPERATING INCOME AND EXPENSE

     In August 1998, Chiron completed the sale of its manufacturing facility in
St. Louis, Missouri resulting in a gain on sale of assets of $1.5 million. In
addition, in June 1998, the Company sold its fill and finishing facility in
Puerto Rico resulting in a gain of $6.2 million.

     Interest expense in the third quarter and first nine months of 1998
decreased $2.1 million and $5.1 million, respectively, from the corresponding
periods of 1997, due primarily to the repayment of $100.0 million on the
Company's lines of credit in January 1998. The borrowings were outstanding under
the Company's U.S. credit facilities and were repaid with a portion of the
proceeds received from the sale of Chiron Vision.

     Other income, net, consists primarily of investment income on the Company's
cash and investment balances and other non-operating gains and losses. Interest
income in the third quarter and first nine months of 1998 increased by $2.9
million and $11.6 million, respectively, as compared with the same periods in
1997, due primarily to increased average cash and investment balances
attributable to the net cash proceeds received from the sale of Chiron Vision.
In addition, for the nine months ended September 30, 1998 and 1997, Chiron
recognized gains of $4.6 million and $2.2 million, respectively, related to the
sale of equity securities. Partially offsetting the increases in other income,
net, for the three and nine months ended September 30, 1998, were losses of $0.9
million and $3.9 million, respectively, attributable to the other-than-temporary
impairment of certain equity securities. No losses related to equity securities
were recognized in 1997.

     The 1998 estimated annual tax provision is expected to be 26 percent of
pretax income from continuing operations, excluding restructuring and
reorganization charges, a financial reporting gain on sale of the Puerto Rico
facility (refer to Note 4 of NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS), and $6.0 million of financial reporting income recognized in the
second quarter of 1998 due to a change in estimated property tax accruals. The
provision may be affected in future periods by changes in management's estimates
with respect to the Company's deferred tax assets and other items affecting the
overall tax rate. In 1998, restructuring and reorganization 


                                       27
<PAGE>

charges recorded during the three and nine months ended September 30, 1998 
are expected to create current additional income tax benefits of 
approximately $0.8 million and $2.9 million, respectively. The benefits from 
restructuring and reorganization charges are lower than the estimated annual 
tax rate applied to such charges due to the timing of the deduction of a 
certain portion of the charges for income tax purposes. The sale of the 
Company's Puerto Rico facility, for which a financial reporting gain on sale 
of assets was recorded during the nine months ended September 30, 1998, 
resulted in a tax deductible loss for which a current additional income tax 
benefit of $1.5 million was recognized. These income tax benefits offset 
income tax expense attributable to pretax income from continuing operations 
and, accordingly, reduce the effective tax rate on continuing operations. 
Financial reporting income of $6.0 million was recognized during the nine 
months ended September 30, 1998 from a change in estimated property tax 
accruals; such accruals were not tax deductible and, accordingly, the change 
of estimate resulted in no income tax provision. During the three and nine 
months ended September 30, 1998, net deferred tax assets of $7.2 million and 
$10.7 million, respectively, and corresponding credits to deferred tax 
expense, were recognized through a reduction in the valuation allowance, as 
they more likely than not will be realized, for U.S. federal and state tax 
purposes. In addition, in the third quarter of 1998, the Company reduced its 
valuation allowance for net deferred tax assets by an additional $53.4 
million as the deferred tax assets will more likely than not be realized due 
to the planned sale of the Company's in vitro diagnostics business. As these 
deferred tax assets resulted from tax benefits related to the Company's stock 
option plans, the corresponding credit was recorded as additional paid-in 
capital. The recognition of such net deferred tax assets is based on 
management's estimates of future taxable income in the United States, 
including the anticipated taxable gain on the planned disposal of the 
Company's in vitro diagnostics business. Such estimates are subject to change 
based on future events and, accordingly, the amount of deferred tax assets 
recognized may increase or decrease from period to period.

     Income tax expense for the three and nine months ended September 30, 
1997 was based on an estimated annual effective tax rate on pretax income 
from continuing operations of approximately 29 percent, excluding the charge 
for the impairment loss on long-lived assets which did not create a 
corresponding income tax benefit at that time. The actual 1997 annual 
effective tax rate of 24 percent, exclusive of the impact of the impairment 
loss in the third quarter, reflects a change in estimate of the mix of 
foreign versus domestic profits, benefits of certain tax credits and loss 
carryforwards, and anticipated foreign sales corporation benefits.

DISCONTINUED OPERATIONS

     On September 17, 1998 Chiron and Bayer entered into a definitive agreement
pursuant to which Chiron has agreed to sell its in vitro diagnostics business to
Bayer for approximately $1,013.8 million in cash, subject to certain
post-closing adjustments. The consummation of the transaction is subject to
standard closing conditions, including receipt of required regulatory approvals,
and is expected to occur in the fourth quarter of 1998. The agreement further
provides for customary post-closing indemnities. Refer to Note 2 of NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

     Under the terms of the agreement, Chiron will retain (i) its blood 
testing business, including certain aspects of its alliance with Gen-Probe, 
Incorporated, (ii) its joint business with Ortho-Clinical Diagnostics, Inc., 
and (iii) its information technology ("informatics") business. Chiron also 
will retain its hepatitis and retrovirus patents and know-how.

     Upon the closing of the sale of Chiron Diagnostics, Chiron and Bayer intend
to enter into certain 


                                       28
<PAGE>

agreements related to the licensing of certain patent rights and know-how 
owned or controlled by Chiron. In addition, on September 25, 1998 Chiron and 
Bayer signed a technology license and option agreement for Bayer's use and 
distribution of software and related systems and services developed by 
Chiron's informatics business.

NEW ACCOUNTING STANDARD

     In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), which is effective for all
quarters of fiscal years beginning after June 15, 1999. SFAS 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
In accordance with SFAS 133, an entity is required to recognize all derivatives
as either assets or liabilities in the statement of financial position and
measure those instruments at fair value. SFAS 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company formally document,
designate, and assess the effectiveness of transactions that receive hedge
accounting. The Company has not determined the timing or method of adoption and
is currently evaluating the effect that implementation of SFAS 133 will have on
its results of operations and financial position.

LIQUIDITY AND CAPITAL RESOURCES

     Chiron's capital requirements have been generally funded from operations,
cash and investments on hand, debt borrowings and sales of equity. In addition
to these sources of capital, future capital requirements may be financed through
a combination of research and development funding provided by Novartis, possible
off-balance-sheet financing and the sale of the Company's in vitro diagnostics
business. Chiron's cash and investments in marketable debt securities, which
totaled $420.0 million at September 30, 1998, are invested in a diversified
portfolio of investment grade financial instruments, including money market
instruments, corporate notes and bonds, government or government agency
securities, and other debt securities. By policy, the amount of credit exposure
to any one institution is limited. These investments are generally not
collateralized and primarily mature within three years. Investments with
maturities in excess of one year are presented on the balance sheet as
noncurrent investments.

     SOURCES AND USES OF CASH Chiron had cash and cash equivalents of $192.4
million and $143.9 million at September 30, 1998 and 1997, respectively. Cash
provided by operating activities was $85.8 million in the first nine months of
1998 as compared with $83.7 million in the first nine months of 1997. The
primary source of cash from operating activities during the first nine months of
1998 was income from continuing operations of $61.6 million offset, in part, by
an increase in accounts receivable. During the first nine months of 1997, the
primary sources of cash from operating activities was a decrease in accounts
receivable due to significant collections by Chiron's Italian subsidiary and the
timing of payments from Novartis and the Chiron-Ortho joint business.

     Cash used in investing activities was $8.3 million in the first nine months
of 1998 as compared with $85.4 million in the first nine months of 1997. In the
first nine months of 1998, the primary sources of cash from investing activities
were proceeds of $298.9 million from the sale of Chiron Vision, $192.4 million
from the sale and maturity of investments in marketable debt securities and


                                       29
<PAGE>

$38.3 million from the sale of the Company's Puerto Rico and St. Louis 
facilities. These sources of cash in the first nine months of 1998 were 
offset by the purchase of $371.3 million of investments in marketable debt 
securities, $54.8 million (net of cash acquired) for the purchase of Chiron 
Behring and acquisitions of property and equipment totaling $82.5 million. In 
the first nine months of 1997, the primary source of cash from investing 
activities was $44.8 million of proceeds from the sale and maturity of 
investments in marketable debt securities. This source of cash in the first 
nine months of 1997 was offset by acquisitions of property and equipment 
totaling $49.9 million and the purchase of $58.5 million of investments in 
marketable debt securities.

     Cash (used in) provided by financing activities was ($95.5) million in the
first nine months of 1998 as compared with $37.2 million in the first nine
months of 1997. In the first nine months of 1998, the primary use of cash was
the repayment of $129.8 million of short-term debt, $100.0 million of which was
outstanding under the Company's U.S. credit facilities and was repaid utilizing
a portion of the proceeds from the sale of Chiron Vision. In the first nine
months of 1997, the primary use of cash was Chiron's purchase of a previously
leased manufacturing facility and related buildings in Emeryville, California
for $29.8 million. Also contributing to cash provided by financing activities
were proceeds of $36.0 million and $52.5 million in the first nine months of
1998 and 1997, respectively, from issuance of common stock under the Company's
stock option and employee stock purchase plans.

     In January 1998, the Company's Board of Directors authorized the purchase
of up to 2.5 million shares of Chiron common stock from time to time on the open
market in order to offset the dilution associated with the operation of the
Company's stock option and employee stock purchase plans and the granting of
share rights. The Board of Directors has authorized such purchases through
January 1999. To date, no shares have been purchased.

     Chiron believes that its cash and investments, funds provided by operations
and capital market transactions will be sufficient to meet its cash requirements
during the upcoming twelve months and through the foreseeable future.

     BORROWING ARRANGEMENTS Under two separate revolving, committed, unsecured
credit agreements with major financial institutions, Chiron can borrow up to
$200.0 million in the U.S. These agreements, which are guaranteed by Novartis,
allow for borrowings of up to $100.0 million each and mature in March 1999 and
February 2003. No borrowings were outstanding under these credit agreements at
September 30, 1998. Under Chiron's credit arrangements outside the U.S.,
borrowings of $25.6 million were outstanding at September 30, 1998.

     OTHER COMMITMENTS In the third quarter of 1998, Chiron and Gen-Probe, 
Incorporated ("Gen-Probe") a wholly owned subsidiary of Chugai Pharmaceutical 
Co., Ltd., signed an agreement to form a strategic alliance to develop, 
manufacture and market nucleic acid probe assay systems for blood testing and 
certain areas of diagnostics. Under the terms of the agreement, Chiron will 
market and sell products that utilize the Company's intellectual property 
relating to HCV and HIV and Gen-Probe's patented transcription-mediated 
amplification, target capture, hybridization protection assay and dual 
kinetic assay technologies. In addition, the technology rights acquired from 
Gen-Probe are anticipated to be utilized across a broad base of marker 
technology within the Company's blood testing and diagnostics businesses. In 
exchange for the rights to Gen-Probe's technology, Chiron paid $10.0 million 
upon signing the agreement, which was recorded as a component of "Other 
intangible assets, net" in the Company's consolidated balance sheet at 
September 30, 1998. Chiron's future milestone payment obligations to 
Gen-Probe consist of a $15.0 million payment due within 30 days after 
Gen-Probe's submission of an investigational new drug application to the FDA 
for its automated HCV/HIV assay for blood testing and another 

                                       30
<PAGE>

$10.0 million upon Gen-Probe's receipt of marketing approval from the FDA for 
such products. As part of the sale of Chiron Diagnostics, Chiron will transfer 
to Bayer certain technologies obtained in the Gen-Probe agreement as it relates 
to in vitro diagnostics and will retain the technologies related to blood 
testing. As a result, upon the completion of the sale of Chiron Diagnostics, 
Bayer will assume $6.5 million of the $15.0 million obligation discussed above. 
The agreement with Gen-Probe also provides certain provisions for additional 
cost sharing and royalties upon the commercialization of specified products.

     Effective July 1, 1998, Chiron and International Business Machines
Corporation ("IBM") executed a ten-year information technology services
agreement. Under this agreement, IBM will provide Chiron with a full range of
information services, including designing and deploying a company-wide
distributed network system, establishing a comprehensive help-desk operation,
and developing a standardized desk-top platform using IBM workstations. Chiron
may terminate this agreement beginning July 1, 1999 subject to certain
termination charges. Through July 1, 1999, Chiron's payments to IBM will total
$19.3 million. If Chiron does not terminate this agreement prior to expiration,
payments to IBM are expected to be approximately $138.8 million in aggregate.
Payments to IBM are subject to adjustment depending upon the levels of services
and infrastructure equipment provided by IBM.

     In June 1996, the Company entered into a seven-year operating lease
agreement with a group of financial institutions to rent a research and
development facility that was constructed in Emeryville, California. Rent
payments, based upon the total construction costs, will commence upon the final
completion of the project which is expected to occur in the first quarter of
1999. Estimated future minimum lease payments are expected to be approximately
$10.5 million annually.

     Chiron's liquidity may be further affected in future periods by its
decision to fund its share of expenses in certain of its joint ventures and
collaboration arrangements. Over the next several years, Chiron anticipates
funding collaborations with a number of its research partners, and may make
additional investments in collaborative partners. The Company also expects to
incur substantial capital spending in future periods.

     MARKET RISK MANAGEMENT The Company's cash flow and earnings are subject to
fluctuations due to changes in foreign currency exchange rates, interest rates,
and fair value of equity securities held. The Company attempts to limit its
exposure to some or all of these market risks through the use of various
financial instruments, as more fully described in Part II, Item 7A.,
"Quantitative and Qualitative Disclosures About Market Risk," of Chiron's Annual
Report on Form 10-K for the fiscal year ended December 28, 1997. To manage
foreign currency exchange risks, Chiron enters into forward foreign currency
contracts ("forwards") and cross currency interest rate swaps ("swaps"), and
purchases foreign currency option contracts ("options"). Chiron does not use any
of these derivative instruments for trading or speculative purposes.

     On April 1, 1998, the Company entered into a series of swaps to modify the
interest and currency characteristics of certain assets and liabilities
denominated in a nonfunctional currency. The objective of the swaps entered into
by the Company is to fix the interest rate and currency rate exposures
associated with the Company's wholly-owned German subsidiary. The exposures are
denominated in Deutsche marks and have a notional amount of $114.2 million at
September 30, 1998.


                                       31
<PAGE>

     The Company has exposure to changes in interest rates in both its
investment portfolio and certain floating rate liabilities and real estate
commitments. The Company maintains investment portfolio holdings of various
issuers, types and maturities. These securities are generally classified as
available-for-sale and consequently, are recorded on the balance sheet at fair
value with unrealized gains or losses reported as a separate component of
stockholders' equity. Other-than-temporary losses are recorded against earnings
in the same period the loss was deemed to have occurred. The Company does not
currently hedge this exposure and there can be no assurance that
other-than-temporary losses will not have a material adverse impact on the
Company's results of operations in the future. The Company also has short-term
debt obligations and certain real estate lease commitments with interest rates
or payments tied to London Interbank Offered Rate (LIBOR).

     YEAR 2000 Chiron is dependent on a number of computer systems and
applications to conduct its business. In the past, many computer programs were
written using two digits rather than four to identify the relevant year. These
programs may not be able to distinguish between 21st and 20th century dates (for
example, "00" may be read as the year 1900 when the year 2000 is intended). This
could result in significant system failures or miscalculations. Accordingly, the
Company has developed a comprehensive risk-based plan designed to make its
computer hardware and communication systems, software applications, and
facilities and other non-information technology-related functions Year 2000
compliant. The plan covers three phases including (i) planning, (ii) assessment,
and (iii) implementation. The Company has substantially completed the planning
and assessment phases, and expects to complete the implementation phase by
mid-1999. With regard to the Company's computer hardware and communication
systems, Chiron is in the process of implementing a technology refresh program
which was developed in conjunction with IBM Corporation to update and
standardize the Company's computer hardware and communication systems. As a
result of this program, the Company expects its computer hardware and
communication systems to be Year 2000 compliant by mid-1999. With regard to the
Company's software applications, the Company has identified critical and
non-critical software applications and is in the process of updating and/or
developing software applications or certifying, in a test environment, that the
software applications are Year 2000 compliant. A major component of remediating
non-compliant software applications is the design and implementation of an
integrated information system. The Company anticipates that implementation of
this integrated information system will be completed by mid-1999. With regard to
the Company's facilities and other non-information technology-related functions,
including research, manufacturing, and inventory management practices, the
Company has performed an assessment and has begun remediation which is intended
to make its facilities and other non-information technology-related functions
Year 2000 compliant by mid-1999.

     The Company is currently utilizing both internal and external resources to
prepare for the year 2000. The Company believes that it should be able to
substantially complete the implementation of critical internal aspects of its
Year 2000 plan prior to the commencement of the year 2000. However, even with
substantial completion of internal remediation plans, the Company's customers,
suppliers and distributors also present risk of their own Year 2000 compliance
over which the Company has no control. The Company has initiated communications
with its critical suppliers and other external relationships to determine the
extent to which the Company may be vulnerable to such parties' failure to
resolve their own Year 2000 issues. Where practicable, the Company will assess
and attempt to mitigate its risks with respect to the failure of these entities
to be Year 2000 compliant. The effect, if any, on the Company's results of
operations from the failure of such parties to be Year 2000 compliant, cannot be
reasonably estimated.


                                       32
<PAGE>

     The Company is also developing contingency plans to address any Year 2000
issues that do arise. As part of the Company's contingency plans, the Company is
developing specific plans for each critical system to ensure that the necessary
precautions are taken to prevent and/or address an unexpected system failure.
Many of these contingency plans are already in place as they are based on
existing plans that are required for the safe and proper operation of the
Company's business, including its research and manufacturing facilities.

     The SEC has requested that companies disclose the most likely worst case
scenario that could occur as a result of the Year 2000. The Company believes
that its most likely worst case scenario would be delays in product shipments
due to a complete or partial manufacturing shutdown and/or the delayed
implementation of the Company's integrated information system. To address the
manufacturing shutdown scenario, the Company plans, among other things, to
increase its inventory and re-prioritize staff assignments, as needed, and does
not believe that such a scenario is likely to occur. With regard to the delayed
implementation of the Company's integrated information system, the Company has
established a contingency plan to remediate its non-compliant business systems
if scheduled milestones are not met. However, based on the Company's progress to
date, and in consideration of the amount of resources allocated to this project,
the Company believes that implementation of its integrated information system
will occur as scheduled.

     The Company may incur significant costs in identifying and resolving Year
2000 issues, including internal staffing costs as well as consulting and other
expenses. In addition, in certain instances, the appropriate course of action
includes replacing or upgrading systems or equipment at a substantial cost to
the Company. Failure of the Company to successfully complete its implementation
of an integrated information system, which is a key element in the Company's
Year 2000 remediation program, may have a material adverse impact on the
Company's operations. The Company currently estimates that the costs associated
with preparing for the year 2000 will range from $9.0 million to $11.0 million.
The costs associated with the technology refresh program and the integrated
information system are not included in the above estimates as Year 2000
compliance is incidental to the operational benefits expected to be derived from
these programs. Costs incurred through September 30, 1998 have been funded
through operations and approximate $0.5 million. The Company anticipates that
most of its Year 2000 costs will be incurred during the fourth quarter of 1998
and the first quarter of 1999. These costs are anticipated to be funded with
cash on hand and cash generated through operations.

FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS

     Chiron wishes to caution stockholders and investors that the following
important factors, among others, in some cases have affected, and in the future
could affect, Chiron's actual results and could cause Chiron's actual
consolidated results for the fourth quarter of 1998, and beyond, to differ
materially from those expressed in any forward-looking statements made by, or on
behalf of, Chiron. The statements under this caption are intended to serve as
cautionary statements within the meaning of the Private Securities Litigation
Reform Act of 1995. The following information is not intended to limit in any
way the characterization of other statements or information under other captions
as cautionary statements for such purpose:

     -    The Company has entered into an agreement to sell its in vitro
          diagnostics business to Bayer Corporation in a transaction that is
          expected to be completed by the end of 1998. The transaction is
          subject to customary closing conditions and no assurance can be made
          as to when or whether the transaction will close.


                                       33
<PAGE>

     -    Delays, difficulties or failure in obtaining and maintaining
          regulatory approval (including approval of its systems, procedures and
          facilities for production) for the Company's products. These may
          include, for example, approval of the Company's Italian manufacturing
          facilities and processes as satisfying regulatory requirements
          for production of the Company's diphtheria, tetanus and genetically
          engineered acellular pertussis and adjuvanted flu vaccines, approval
          for Myotrophin-Registered Trademark- for which additional clinical
          trials may be required by the FDA, and approval for DepoCyt-TM-
          (injectable sustained-release cytarabine).

     -    The impact of unusual or infrequent charges resulting from Chiron's
          implementation of new business strategies and organizational
          structures.

     -    The cost of acquiring in-process technology, either by license,
          collaboration or purchase of another entity, and including the costs
          of integrating acquired businesses.

     -    Charges that may be incurred or accrued as a result of the
          implementation of restructuring plans, including possible disposal of
          excess manufacturing and other general facilities, or as a result of
          the underutilization of manufacturing and other general facilities,
          including facility expansions.

     -    The ability of the Company to successfully complete its implementation
          of an integrated information system.

     -    Costs of remediation related to issues that may be identified or
          incurred as a result of the Company's ongoing evaluation of its Year
          2000 compliance, and the potential exposure to failures by third
          parties to properly remediate their own Year 2000 issues.

     -    The Company's exposure to interest rate fluctuations increases as the
          Company's cash and investment balances increase.

     -    Inability to maintain or initiate third party arrangements which
          generate revenues, in the form of license fees, research and
          development support, royalties, sales fees and other payments, in
          return for rights in technology or products under development or
          promotional or other services provided by the Company.

     -    The issuance and use of patents and proprietary technology by Chiron
          and its competitors, including the possible negative effect on the
          Company's ability to develop, manufacture and sell its products if it
          is unable to obtain licenses to patents which may be required for such
          products.

     -    Failure of corporate partners to successfully commercialize the
          Company's products or to retain and expand the markets served by the
          commercial collaborations; conflicts of interest, priorities and
          commercial strategies which may arise between the Company and such
          corporate partners, including conflicts as to the strategy for
          realizing value arising from evolving opportunities. The impact of
          competing products, and inventory management practices, pricing,
          promotional and marketing decisions by the Company's 


                                       34
<PAGE>

          partners, Schering AG for Betaseron-Registered Trademark-, Johnson & 
          Johnson for PDGF and Ortho-Clinical Diagnostics, Inc. for the 
          Chiron-Ortho joint business.

     -    Delay, difficulty or inability on acceptable terms to resolve
          conflicts with partners.

     -    Delays or difficulties in developing and acquiring technology and
          technical and managerial personnel to manufacture and/or deliver the
          Company's products in commercial quantities at reasonable costs and in
          compliance with applicable quality assurance and environmental
          regulations and governmental permitting requirements.

     -    Possible changes in laws, regulations and guidelines of regulatory
          agencies, which may affect the development, manufacture and sale of
          the Company's products.

     -    The ability and willingness of customers to substitute competitive
          products for the Company's products if other products for similar
          indications are approved for marketing.

     -    Difficulties in obtaining key raw materials and supplies of acceptable
          quality used in the manufacture of the Company's products.

     -    Increased costs of development, regulatory approval, manufacture,
          sales, and marketing associated with the introduction of novel
          products and fluctuation of such costs between periods.

     -    Difficulties in launching or marketing the Company's products, many of
          which are novel products based on biotechnology, and unpredictability
          of customer acceptance of such products.

     -    Continued increases in research and development spending in order to
          develop new products and increase market share.

     -    Continued or increased pressure to reduce selling prices of the
          Company's products.

     -    Revaluation of assets, including, among others, the Company's
          investments in the equity securities of other companies with whom it
          collaborates, or related expenses.

     -    Changes to tax rates or possible future changes to conditions of
          certain tax rulings obtained by the Company or its subsidiaries, or
          outcomes of present or future examinations by tax authorities.

     -    The costs and other effects of legal and administrative cases and
          proceedings (whether civil, such as product-related or environmental,
          or criminal); settlements and investigations; developments or
          assertions by or against Chiron relating to intellectual property
          rights and licenses.

     -    Seasonal fluctuations in product sales and resulting gross margin
          amounts.


                                       35
<PAGE>

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     A discussion of the Company's exposure to, and management of, market risk
appears in Part 1, Item 2 of this Quarterly Report on Form 10-Q under the
heading "Market risk management."

                                     PART II

ITEM 1.  LEGAL PROCEEDINGS.

The Company is party to certain lawsuits and legal proceedings, which are
described in Part I, Item 3, "Legal Proceedings," of the Company's Annual Report
on Form 10-K for the year ended December 28, 1997. No material developments in
the area of legal proceedings have occurred since such Form 10-K was filed
except as described in the Company's Forms 10-Q for the periods ended March 29,
1998 and June 28, 1998 and except as follows:

F. HOFFMANN LAROCHE

Chiron is involved in certain litigation in the United States, The Netherlands,
Japan, and Germany with F. Hoffmann-LaRoche AG and several of its affiliated
companies concerning infringement and/or validity of certain Chiron patents
related to HCV technology. It is not known when nor on what bases any of these
litigation matters will be concluded.

On February 3, 1998, Chiron filed an action in The District Court of The Hague,
The Netherlands against F. Hoffmann-LaRoche AG, several of its affiliated
companies (collectively, "Roche AG"), and one of Roche AG's Dutch customers
asserting Roche AG's infringement of the Company's European Patent 0 318 216
(the "'216 patent") relating to HCV nucleic acid technology. Chiron seeks a
cross-border injunction with effect in a number of European countries,
prohibiting the sale of Roche AG's Amplicor HCV-TM- Test and Amplicor HCV
Monitor-TM- Test. Roche AG has asserted certain defenses and counterclaims in
this matter. Trial occurred in October 1998 with respect to certain of these
issues. Subject to the results of that trial, further, as yet unscheduled,
proceedings may be necessary before this action is resolved. In a separate 
proceeding, Roche AG and Chiron are appealing the European Patent Office's 
Opposition Division's decision upholding the `216 patent in amended form.

On January 9, 1997, Chiron, together with Ortho-Clinical Diagnostics, Inc., 
filed suit against F. Hoffmann-LaRoche AG ("Roche") in the Regional Court, 
4th Civil Division, Dusseldorf, Germany, for infringement of the `216 patent. 
The suit seeks damages and injunctive relief preventing further manufacture 
or sale of infringing HCV immunoassay kits by Roche. Roche has asserted 
certain claims and defenses in this matter. Trial is set for January 7, 1999.

CONNAUGHT LABORATORIES, LIMITED

On July 17, 1997, Connaught filed suit in the Landgericht Dusseldorf, 
Germany, against Chiron Behring GmbH & Co, Chiron S.p.A., and Behringwerke AG 
asserting imminent infringement of Connaught's European Patent 0 322 115 (the 
"'115 patent") relating to pertussis toxin mutants. Connaught seeks to 
prevent introduction of TriAcelluvax-TM- in Germany. Also, Connaught seeks 
damages and an order from the German court enjoining Chiron S.p.A. from 
manufacturing and selling TriAcelluvax-TM- in both Germany and Italy. Trial 
was held in August 1998 and a decision in this matter is expected in December 
1998. It is not known when nor under what basis litigation will be concluded.

                                       36
<PAGE>

ORTHO-CLINICAL DIAGNOSTICS, INC.

On February 17, 1998, Chiron filed a lawsuit against Ortho-Clinical Diagnostics,
Inc. in the United States District Court for the Northern District of 
California. The suit concerns certain issues relating to the conduct of the
parties' joint business and seeks to compel arbitration of those issues. A
hearing on Chiron's motion to compel arbitration is scheduled in December 1998.
It is not known when nor on what basis this matter will be concluded.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) EXHIBITS.

<TABLE>
<CAPTION>
        Exhibit
        Number                               Exhibit
        -------                              -------
       <C>         <S>
         3.01      Restated Certificate of Incorporation of the Registrant, as
                   filed with the Office of the Secretary of State of Delaware
                   on August 17, 1987, incorporated by reference to Exhibit
                   3.01 of the Registrant's Form 10-K report for fiscal year
                   1996.

         3.02      Certificate of Amendment of Restated Certificate of
                   Incorporation of the Registrant, as filed with the Office of
                   the Secretary of State of Delaware on December 12, 1991,
                   incorporated by reference to Exhibit 3.02 of the
                   Registrant's Form 10-K report for fiscal year 1996.

         3.03      Bylaws of the Registrant, as amended.

         3.04      Certificate of Amendment of Restated Certificate of
                   Incorporation of the Registrant, as filed with the Office of
                   the Secretary of State of Delaware on May 22, 1996,
                   incorporated by reference to Exhibit 3.04 of the
                   Registrant's Form 10-Q report for the period ended June 30,
                   1996.


         4.01      Indenture, dated as of May 21, 1987, between Cetus
                   Corporation and Bankers Trust Company, Trustee, incorporated
                   by reference to Exhibit 4.01 of the Registrant's Form 10-Q
                   report for the period ended September 30, 1994.

         4.02      First Supplemental Indenture, dated as of December 12, 1991,
                   by and among Registrant, Cetus Corporation, and Bankers
                   Trust Company, incorporated by reference to Exhibit 4.02 of
                   Registrant's Form 10-K report for fiscal year 1997.

         4.03      Second Supplemental Indenture, dated as of March 25, 1996,
                   by and among the Registrant, Cetus Oncology Corporation
                   (formerly Cetus Corporation), and Bankers Trust Company,
                   incorporated by reference to Exhibit 4.03 of the
                   Registrant's Form 10-Q report for the period ended June 30,
                   1996.

         4.04      Indenture, dated as of November 15, 1993, between Registrant
                   and The First National Bank of Boston, as Trustee,
                   incorporated by reference to 


                                       37
<PAGE>

       <C>         <S>
                   Exhibit 4.03 of the Registrant's Form 10-K report for 
                   fiscal year 1993.

         4.05      $1,000,000 County of Lorain, Ohio Variable Rate Industrial
                   Revenue Bonds dated as of July 1, 1984, due July 1, 2014,
                   incorporated by reference to Exhibit 4.06 of the
                   Registrant's Form 10-Q report for the period ended April 2,
                   1995. The Registrant agrees to furnish to the Commission
                   upon request a copy of such agreement which it has elected
                   not to file under the provisions of Regulation
                   601(b)(4)(iii).

         4.6       $1,000,000 Walpole Industrial Development Authority 6.75%
                   Industrial Revenue Bonds dated as of July 1, 1979, due July
                   1, 2004, incorporated by reference to Exhibit 4.07 of the
                   Registrant's Form 10-Q report for the period ended April 2,
                   1995. The Registrant agrees to furnish to the Commission
                   upon request a copy of such agreement which it has elected
                   not to file under the provisions of Regulation
                   601(b)(4)(iii).

         10.402    Stock Purchase Agreement dated as of September 17, 1998,
                   among Bayer Corporation, the Registrant and Chiron
                   Diagnostics Corporation, and Exhibits thereto. Certain
                   information has been omitted from the Agreement and filed
                   separately with the Securities and Exchange Commission
                   pursuant to a request by Registrant for confidential
                   treatment pursuant to Rule 24b-2. The omitted confidential
                   information has been identified by the following statement:
                   "Confidential Treatment Requested".

         10.510    Form of Stock Option Agreement, Chiron 1991 Stock Option
                   Plan, for Employees of Registrant.

         10.511    Form of Stock Option Agreement, Chiron 1991 Stock Option
                   Plan, for Non-Employee Directors of Registrant.

         10.613    Letter Agreement dated July 8, 1998 between the Registrant
                   and Richard W. Barker, Ph.D. Certain information has been
                   omitted from the Agreement and filed separately with the
                   Securities and Exchange Commission pursuant to a request by
                   Registrant for confidential treatment pursuant to Rule
                   24b-2. The omitted confidential information has been
                   identified by the following statement: "Confidential
                   Treatment Requested".

         11        Statement of Computation of Earnings per Share.

         27        Financial Data Schedule for Nine Months ended September 27,
                   1998.
</TABLE>

(b)  REPORTS ON FORM 8-K.

     On September 21, 1998, the Company filed a Current Report on Form 8-K,
reporting under Item 5 the execution on September 17, 1998 of an agreement
among the Company, Chiron Diagnostics Corporation, and Bayer Corporation,
pursuant to which the Company has agreed to sell to Bayer all of the
outstanding common stock of Chiron Diagnostics for approximately $1,013.8
million in cash, subject to certain adjustments.


                                       38
<PAGE>

                               CHIRON CORPORATION

                               September 27, 1998


                                   SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



                                       CHIRON CORPORATION


DATE:   November 9, 1998               BY: /s/ SEAN P. LANCE
      --------------------                 -------------------------------------
                                           Sean P. Lance
                                           President and Chief Executive Officer


DATE:   November 9, 1998               BY: /s/ JAMES R. SULAT
      --------------------                 -------------------------------------
                                           James R. Sulat
                                           Chief Financial Officer


                                       39